Primerica 2010 Annual Report - Direct Selling News

We also receive record-keeping fees monthlyfrom mutual fund accounts on our servicingplatform and in turn pay a third-party providerfor its servicing of certain of these accounts.Benefits Expense. Policy claims are chargedto expense in the period in which the claims areincurred.Share-Based Transactions. For employeeshare-based compensation, we determine agrant date fair value and recognize the relatedcompensation expense, adjusted for expectedforfeitures, in the statement of income over thevesting period of the respective awards. Fornon-employee share-based compensation, werecognize the impact throughout the vestingperiod and the fair value of the award is basedon the vesting date. To the extent that a sharebasedaward contains sale restrictionsextending beyond the vesting date, we reducethe recognized fair value of the award to reflectthe corresponding liquidity discount. Certainnon-employee share-based compensationvaries with and primarily relates to theacquisition or renewal of life insurance policies.We defer these expenses and amortize theimpact over the life of the underlying lifeinsurance policies acquired.Earnings Per Share (EPS). Primerica hasoutstanding common stock, warrants, andequity awards. Both the vested and unvestedequity awards maintain non-forfeitable dividendrights that result in dividend paymentobligations on a one-to-one ratio with commonshares for any future dividend declarations.These equity awards are deemed participatingsecurities for purposes of calculating EPS.As a result of issuing equity awards that aredeemed participating securities, we calculateEPS using the two-class method. Under thetwo-class method, we allocate earnings tocommon shares and to fully vested equityawards. Earnings attributable to unvestedequity awards, along with the correspondingshare counts, are excluded from EPS asreflected in our consolidated statements ofincome.In calculating basic EPS, we deduct anydividends and undistributed earnings allocatedto unvested equity awards from net income andthen divide the result by the weighted-averagenumber of common shares and fully vestedequity awards outstanding for the period.We determine the potential dilutive effect ofwarrants on EPS using the treasury-stockmethod. Under this method, we utilize theexercise price to determine the amount of cashthat would be available to repurchase shares ifthe warrants were exercised. We then use theaverage market price of our common sharesduring the reporting period to determine howmany shares we could repurchase with the cashraised from the exercise. The net incrementalshare count issued represents the potentialdilutive securities. We then reallocate earningsto common shares and fully vested equityawards incorporating the increased, fullydiluted share count to determine diluted EPS.The calculation of basic and diluted EPS was asfollows:Year endedDecember 31, 2010(In thousands)Basic EPS:Numerator:Net income $257,778Income attributable to unvestedparticipating securities (10,433)Net income used incalculating basic EPS $247,345Denominator:Weighted-average shares 72,099Basic EPS $ 3.43Diluted EPS:Numerator:Net income $257,778Income attributable to unvestedparticipating securities (10,326)Net income used incalculating diluted EPS $247,452Denominator:Weighted-average shares 72,882Diluted EPS $ 3.40We calculated EPS on a pro forma basis usingweighted-average shares, including the sharesoutstanding following our April 1, 2010corporate reorganization as though they hadbeen issued and outstanding on January 1,2010.118 Freedom Lives Here