5. Earnings per share
According to the criteria established by IAS 33:
- Basic earnings per share are determined by dividing the “Net income attributed to Parent Company” by the weighted average number of shares outstanding throughout the year, excluding the average number of treasury sales held over the year.
- Diluted earnings per share are calculated by using a method similar to that used to calculate basic earnings per share; the weighted average number of shares outstanding, and the net income attributed to the parent company if appropriate, is adjusted to take into account the potential dilutive effect of certain financial instruments that could generate the issue of new Bank shares (share option commitments with employees, warrants on parent company shares, convertible debt instruments) or for discontinued operations.
The following transactions were carried out in 2011, 2010 and 2009 with an impact in the calculation of basic and diluted earnings per share:
- In 2011 and 2010 the Bank has carried out capital increases with pre-emptive subscription rights for former shareholders (see Note 27). According to IAS 33, when calculating the basic and diluted earnings per share all the years prior to the exercise of the rights must be taken into account, and a corrective factor applied to the denominator (the weighted average number of shares outstanding) only in the case of capital increases other than those for conversion of securities into shares. This corrective factor is the result of dividing the fair value per share immediately before the exercise of rights by the theoretical ex-rights fair value per share. For these purposes the basic and diluted earnings per share have been recalculated for 2010 and 2009 as in the following table.
- In 2009 and 2011 the Bank issued subordinated securities that were mandatory convertible into ordinary newly issued BBVA shares.
- In 2009 the Bank issued subordinated securities that were mandatory convertible into ordinary newly issued BBVA shares amounting to €2,000 million. At its meeting on June 22, 2011, the Board of Directors of BBVA agreed to convert all these bonds dated July 15, 2011 (see Note 27).
- On December 30, 2011, the Bank issued subordinate securities that were mandatory convertible into ordinary newly issued BBVA shares amounting to €3,430 million (see Note 23.4).
Since the conversion of both bond issues is mandatory on the date of their final maturity, in accordance with the IAS 33 criteria the following adjustments must be applied to both the calculation of the diluted earnings per share as well as the basic earnings per share:
- In the numerator, the net income attributed to the parent company is increased by the amount of the annual coupon of the subordinated convertible bond.
- In the denominator, the weighted average number of shares outstanding is increased by the estimated number of shares after the conversion.
Thus, as can be seen in the following table, for 2011, 2010 and 2009 the figures for basic earnings per share and diluted earnings per share are the same, as the dilution effect of the mandatory conversion must also be applied to the calculation of the basic earnings per share.
The calculation of earnings per share in 2011, 2010 and 2009 is as follows:
| Basic and Diluted Earnings per Share | 2011 | 2010 (*) | 2009 (2) |
|---|---|---|---|
| Numerator for basic and diluted earnigs per share (million of euros) | |||
| Net income attributed to parent company | 3,004 | 4,606 | 4,210 |
| Adjustment: Mandatory convertible bonds interest expenses | 38 | 70 | 18 |
| Net income adjusted (millions of euros) (A) | 3,042 | 4,676 | 4,228 |
| Denominator for basic earnings per share (number of shares outstanding) | |||
| Weighted average number of shares outstanding (1) | 4,635 | 3,762 | 3,719 |
| Weighted average number of shares outstanding x corrective factor (2) | - | 3,876 | 3,925 |
| Adjustment: Average number of estimated shares to be converted | 134 | 221 | 39 |
| Adjusted number of shares (B) | 4,769 | 4,097 | 3,964 |
| Basic earnings per share (Euros per share)A/B | 0.64 | 1.14 | 1.07 |
| Diluted earnings per share (Euros per share)A/B | 0.64 | 1.14 | 1.07 |
As of December 31, 2011, 2010 and 2009, except for the aforementioned convertible bonds, there were no other financial instruments, share option commitments with employees or discontinued transactions that could potentially affect the calculation of the diluted earnings per share for the years presented.