19. EARNINGS (LOSS) PER SHARE (EPS)

Basic and diluted earnings (loss) per share are based on the weighted average number of common shares outstanding, adjusted to reflect all stock dividends and stock splits. Diluted EPS is based on those shares used in basic EPS plus shares that would have been outstanding assuming issuance of common shares for all dilutive potential common shares outstanding, adjusted to reflect all stock dividends and stock splits. Basic EPS was not affected by outstanding stock purchase contracts. Diluted EPS was not affected by outstanding stock purchase contracts because they were not dilutive.

In connection with the issuance of the Series C Preferred Stock, we applied the two-class method for calculating EPS. The two-class method is an earnings allocation method for computing EPS when a company's capital structure includes either two or more classes of common stock or common stock and participating securities. This method determines EPS based on dividends declared on common stock and participating securities (i.e., distributed earnings), as well as participation rights of participating securities in any undistributed earnings. The Series C Preferred Stock was retired as part of the Recapitalization on January 14, 2011.

We applied the two-class method due to the participation rights of the Series C Preferred Stock through January 14, 2011. However, application of the two-class method had no effect on earnings per share for 2011 because we recognized a net loss attributable to AIG common shareholders from continuing operations, which is not applicable to participating stock for EPS, for 2011. Subsequent to January 14, 2011, we have not had any outstanding participating securities that would subject us to the two-class method.

The following table presents the computation of basic and diluted EPS:





Years Ended December 31, (dollars in millions, except per share data)
	2012			2011			2010

Numerator for EPS:
Income from continuing operations	$	7,752		$	19,540		$	13,254
Net income from continuing operations attributable to noncontrolling interests:
Nonvoting, callable, junior and senior preferred interests		208			634			1,818
Other		54			54			354

Total net income from continuing operations attributable to noncontrolling interests		262			688			2,172

Net income attributable to AIG from continuing operations		7,490			18,852			11,082

Income (loss) from discontinued operations	$	(4,052	)	$	1,790		$	(969	)
Net income from discontinued operations attributable to noncontrolling interests		–			20			55

Net income (loss) attributable to AIG from discontinued operations, applicable to common stock for EPS		(4,052	)		1,770			(1,024	)

Deemed dividends to AIG Series E and F Preferred Stock		–			(812	)		–
Income (loss) allocated to the Series C Preferred Stock – continuing operations		–			–			(8,828	)
Net income attributable to AIG common shareholders from continuing operations, applicable to common stock for EPS	$	7,490		$	18,040		$	2,254

Income (loss) allocated to the Series C Preferred Stock – discontinued operations		–			–			816
Net income (loss) attributable to AIG common shareholders from discontinued operations, applicable to common stock for EPS	$	(4,052	)	$	1,770		$	(208	)

Denominator for EPS:
Weighted average shares outstanding – basic		1,687,197,038			1,799,385,757			136,585,844
Dilutive shares		29,603			72,740			63,436

Weighted average shares outstanding – diluted*		1,687,226,641			1,799,458,497			136,649,280

EPS attributable to AIG common shareholders:
Basic and diluted:
Income from continuing operations	$	4.44		$	10.03		$	16.50
Income (loss) from discontinued operations	$	(2.40	)	$	0.98		$	(1.52	)

* Dilutive shares are calculated using the treasury stock method and include dilutive shares from share-based employee compensation plans, and the warrants issued to the Department of the Treasury in 2009. The number of shares excluded from diluted shares outstanding were 78 million, 76 million and 11 million for the years ended December 31, 2012, 2011 and 2010, respectively, because the effect would have been anti-dilutive.

Deemed dividends resulted from the Recapitalization and represent the excess of:

•: the fair value of the consideration transferred to the Department of the Treasury, which consisted of 1,092,169,866 shares of AIG Common Stock, $20.2 billion of AIA SPV Preferred Interests and ALICO SPV Preferred Interests, and a liability for a commitment by us to pay the Department of the Treasury's costs to dispose of all of its shares, over
•: the carrying value of the Series E Preferred Stock and Series F Preferred Stock.

The fair value of the AIG Common Stock issued for the Series C Preferred Stock over the carrying value of the Series C Preferred Stock is not a deemed dividend because the Series C Preferred Stock was contingently convertible into the 562,868,096 shares of AIG Common Stock for which it was exchanged. See Note 25 herein for further discussion of shares exchanged in connection with the Recapitalization.