Diluted earnings per share is calculated by adjusting the average number of shares outstanding for the dilutive effect of share options. For the purpose of calculating diluted earnings per share, AEGON assumed that all dilutive share options have been exercised at the exercise price, or adjusted exercise price if necessary. The proceeds are regarded as having been received from the issue of ordinary shares at the average market price of the AEGON N.V. share during the year. The difference between the number of dilutive options issued and the number of ordinary shares that would have been
issued at the average market price has been treated as an issue of ordinary shares for no consideration.
The number of share options that has not been included in the weighted average number of ordinary shares used in the calculation of diluted earnings per share, because these share options were anti- dilutive for the periods presented, amounted to 8,993,229 (2006: 9,151,195 and 2005: 853,048). The exercise prices of these share options range from EUR 30.63 to EUR 14.98.
2007 2006 2005
Net income attributable to equity holders 2,551 3,169 2,147
Dividends on preferred shares (85) (80) (79)
Coupons on perpetuals (175) (143) (132)
Net income attributable to ordinary shareholders for diluted earnings per share calculation 2,291 2,946 1,936 Weighted average number of ordinary shares (thousands) 1,561,395 1,578,631 1,548,346
Adjustments for: share options (thousands) 1,182 1,072 201
Weighted average number of ordinary shares
for diluted earnings per share calculation (thousands) 1,562,587 1,579,703 1,548,547
Diluted earnings per share (EUR per share) 1.47 1.86 1.25
43 DIVIDEND PER SHARE
The dividend per share paid in 2007 (final 2006 and interim 2007) and 2006 (final 2005 and interim 2006) were EUR 0.61 and EUR 0.47 respectively. A final dividend in respect of book year 2007 of EUR 0.32 per share, resulting in a total dividend of EUR 0.62 per share for 2007,
is to be proposed at the General Meeting of Shareholders on April 23, 2008. These financial statements do not reflect the proposed final dividend payable.
Chapter fi veFINANCIAL INFORMATION
44 CAPITAL AND SOLVENCY
AEGON’s capital base reflects the capital employed in insurance activities and consists of shareholders’ equity, capital securities and dated subordinated and senior debt. AEGON targets its capital base to comprise at least 70% shareholders equity (excluding the revaluation reserve), 25% perpetual capital securities (consisting of junior
AEGON is subject to legal restrictions on the amount of dividends it can pay to its shareholders. Under Dutch law the amount that is available to pay dividends consists of total shareholders’ equity less the issued and outstanding capital and less the reserves required by law. Retained earnings includes a EUR 770 million statutory reserve for subsidiaries.The revaluation account is a legal reserve established by AEGON N.V. in light of the investments held by group companies. In accordance with Book 2, Part 9 of the Dutch Civil Code it comprises the revaluation reserves held by group companies (EUR (516) million, 2006: EUR 1,648 million). Other reserves include the foreign currency translation reserve for an amount of EUR (2,010) million ( 2006: EUR (565) million and the reserve for AEGON’s share of changes recognized directly in equity of associates for an amount of EUR (31) million (2006: EUR 27 million). The reserves are released to the income statement upon the sale of the subsidiary or associate. In case of negative balances for individual reserves legally to be retained, no distributions can be made out of retained earnings to the level of these negative amounts.
However, certain of AEGON’s subsidiaries, principally insurance companies, are subject to restrictions on the amounts of funds they may transfer in the form of cash dividends or otherwise to their parent companies. While management does not believe such restrictions on AEGON’s subsidiaries will affect its ability to pay dividends in the future, there can be no assurance that these restrictions will not limit or prevent AEGON from doing so.
perpetual capital securities and perpetual cumulative subordinated bonds) and a maximum of 5% dated subordinated and senior debt related to insurance activities.
The table that follows reconciles total shareholders’ equity to the total capital base:
2007 2006
Total shareholders’ equity 15,151 18,605
Junior perpetual capital securities 4,192 3,447
Perpetual cumulative subordinated bonds 567 567
Share options not yet exercised 36 18
Minority interest 16 16
Trust pass-through securities 143 123
Subordinated borrowings 34 34
Borrowings 6,021 4,991
Borrowings not related to capital funding of insurance activities (4,766) (3,518)
TOTAL CAPITAL BASE 21,394 24,283
Borrowings not related to capital funding of insurance activities mainly include operational funding of US regulation XXX and guideline AXXX redundant reserves, funding of mortgage warehousing activities, short-term funding of cash and collateral management activities, and the proportional amount of other borrowings not immediately deployed for capital management activities. In the ordinary course of business, AEGON N.V. may at times have borrowings, which are offset by cash and cash equivalents available for future capital management activities, such as funding capital contributions in its subsidiaries, redemption of borrowings or payment of dividends to its shareholders. The Total Capital Base is a non-IFRS measure, as IFRS does not permit separate presentation of borrowings based on the deployment of the proceeds.
Both insurance and banking companies are required to maintain a minimum solvency margin based on local directives. AEGON’s insurance subsidiaries in the United States are subject to risk-based standards established by the National Association of Insurance Commissioners. At December 31, 2007, the combined risk-based capital ratio of AEGON’s life insurance subsidiaries in the United States was 336%. Under the Insurance Industry Supervision Act 1993 in the Netherlands, life insurance companies are required to maintain equity of among others 4% of general account technical reserves and, in case of no interest guarantee, 1% of technical reserves with investments for account of policyholders plus 0.3% of the amount at risk under the insurance policies for life insurers. The Financial Services Authority regulates insurance companies in the United Kingdom under the Financial Services and Markets Act 2000 and sets minimum standards for capital adequacy and solvency.
45 SUMMARY OF TOTAL FINANCIAL ASSETS AND FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
The table that follows summarizes the carrying amounts of financial assets and financial liabilities that are classified as at fair value through profit or loss, with appropriate distinction between those financial assets and financial liabilities held for trading and those that, upon initial recognition, were designated as at fair value through profit or loss.
2007 2006