PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
15.
EQUITY (continued)
Common Stock Held in Treasury
Common Stock held in treasury is accounted for at average cost. Gains resulting from the reissuance of “Common Stock held in
treasury” are credited to “Additional paid-in capital.” Losses resulting from the reissuance of “Common Stock held in treasury” are charged
first to “Additional paid-in capital” to the extent the Company has previously recorded gains on treasury share transactions, then to
“Retained earnings.”
In June 2011, Prudential Financial’s Board of Directors authorized the Company to repurchase at management’s discretion up to $1.5
billion of its outstanding Common Stock through June 2012. The timing and amount of any share repurchases will be determined by
management based on market conditions and other considerations, and the repurchases may be effected in the open market, through
derivative, accelerated repurchase and other negotiated transactions and through plans designed to comply with Rule 10b5-1(c) under the
Exchange Act. Numerous factors could affect the timing and amount of any repurchases under the share repurchase program, including
increased capital needs of the Company’s businesses due to opportunities for growth and acquisitions, as well as adverse market conditions.
During 2011, the Company acquired 19.8 million shares of its Common Stock under this authorization at a total cost of $999.5 million.
The timing and amount of repurchases under these authorizations were determined by management based upon market conditions and
other considerations, with repurchases effected in the open market, through derivative, accelerated repurchase and other negotiated
transactions and through prearranged trading plans complying with Rule 10b5-1(c) of the Exchange Act.
Stock Conversion Rights of the Class B Stock
Prudential Financial may, at its option, at any time, exchange all outstanding shares of Class B Stock into such number of shares of
Common Stock as have an aggregate average market value equal to 120% of the appraised fair market value of the outstanding shares of
Class B Stock.
Holders of Class B Stock will be permitted to convert their shares of Class B Stock into such number of shares of Common Stock as
have an aggregate average market value equal to 100% of the appraised fair market value of the outstanding shares of Class B Stock (1) in
the holder’s sole discretion, in the year 2016 or at any time thereafter, and (2) at any time in the event that (a) the Class B Stock will no
longer be treated as equity of Prudential Financial for federal income tax purposes or (b) the New Jersey Department of Banking and
Insurance amends, alters, changes or modifies the regulation of the Closed Block, the Closed Block Business, the Class B Stock or the IHC
debt in a manner that materially adversely affects the “CB Distributable Cash Flow”; provided, however, that in no event may a holder of
Class B Stock convert shares of Class B Stock to the extent such holder immediately upon such conversion, together with its affiliates,
would be the beneficial owner (as defined under the Securities Exchange Act of 1934) of in excess of 9.9% of the total outstanding voting
power of Prudential Financial’s voting securities. In the event a holder of shares of Class B Stock requests to convert shares pursuant to
clause (2)(a) in the preceding sentence, Prudential Financial may elect, instead of effecting such conversion, to increase the Target
Dividend Amount to $12.6875 per share per annum retroactively from the time of issuance of the Class B Stock.
Dividends
The principal sources of funds available to Prudential Financial, the parent holding company, are dividends, returns of capital and
interest income from its subsidiaries, and cash and short-term investments. The primary uses of funds at Prudential Financial include
servicing its debt and the payment of declared shareholder dividends, operating expenses and capital contributions and obligations to its
subsidiaries.
The regulated insurance and various other subsidiaries are subject to regulatory limitations on their payment of dividends and other
transfers of funds to Prudential Financial. With respect to Prudential Insurance, New Jersey insurance law provides that, except in the case
of extraordinary dividends (as described below), all dividends or other distributions paid by Prudential Insurance may be paid only from
unassigned surplus, as determined pursuant to statutory accounting principles, less unrealized investment gains and losses and revaluation
of assets as of the prior calendar year-end. As of December 31, 2011, Prudential Insurance’s unassigned surplus was $5,070 million, and it
recorded applicable adjustments for cumulative unrealized investment gains of $2,184 million. Prudential Insurance must give prior
notification to the New Jersey Department of Banking and Insurance (the “Department”) of its intent to pay any dividend or distribution.
Also, if any dividend, together with other dividends or distributions made within the preceding twelve months, exceeds the greater of
(i) 10% of Prudential Insurance’s statutory surplus as of the preceding December 31 ($8,160 million as of December 31, 2011) or (ii) its
statutory net gain from operations excluding realized investment gains and losses for the twelve month period ending on the preceding
December 31, ($584 million for the year ended December 31, 2011), the dividend is considered to be an “extraordinary dividend” and the
prior approval of the Department is required for the payment of the dividend.
The laws regulating dividends of Prudential Financial’s other insurance subsidiaries domiciled in other states and foreign jurisdictions
are similar, but not identical, to New Jersey’s. Further, as a result of Gibraltar Life’s reorganization in 2001, in addition to regulatory
restrictions, certain other restrictions precluded Gibraltar Life from paying common stock dividends to Prudential Financial. However, the
Company anticipates that following the merger of Gibraltar, Star and Edison, the merged entity will be able to pay common stock
dividends to Prudential Financial, subject to legal and regulatory restrictions.
The declaration and payment of dividends on the Common Stock depends primarily upon the financial condition, results of operations,
cash requirements, future prospects and other factors relating to the Financial Services Businesses. Furthermore, dividends on the Common
Stock are limited to both the amount that is legally available for payment under New Jersey corporate law if the Financial Services
Businesses were treated as a separate corporation thereunder and the amount that is legally available for payment under New Jersey
corporate law on a consolidated basis after taking into account dividends on the Class B Stock.
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Prudential Financial, Inc. 2011 Annual Report