Prudential 2002 Annual Report Download - page 104
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Notes to Consolidated Financial Statements
4. CAPITAL MARKETS RESTRUCTURING (continued)
as “Capital markets restructuring.” The charge includes $213 million for employee related costs, consisting
largely of severance and termination benefits. The charge also includes the write-off of $140 million of goodwill
previously recorded in connection with investment banking acquisitions. Remaining charges of $123 million
consist of lease termination payments and other facility exit costs, including office equipment and leasehold
improvements write-downs, and other related costs. As of December 31, 2002 and 2001, remaining reserves for
capital markets restructuring costs were $13 million and $28 million, respectively.
5. ACQUISITION OF KYOEI LIFE INSURANCE COMPANY, LTD.
In April 2001, the Company completed the acquisition of Kyoei Life Insurance Co., Ltd. (“Kyoei”), a stock
life insurance company located in Japan, which has been accounted for as a purchase. Kyoei was renamed
Gibraltar Life Insurance Company, Ltd. (“Gibraltar Life”) by the Company concurrent with the acquisition.
Gibraltar Life provides financial services throughout Japan. Gibraltar Life primarily offers four types of insurance
products: individual insurance, including life and indemnity health coverage; individual annuities; group life
insurance; and group annuities. It distributes these products through an agency force and large employer groups.
Gibraltar Life also has domestic and foreign subsidiaries, including non-insurance businesses, which are not
material to its financial position or results of operations.
Prior to its acquisition, Gibraltar Life filed for reorganization under the Reorganization Law of Japan. The
Reorganization Law, similar to Chapter 11 of the U.S. Bankruptcy Code, is intended to provide a mechanism for
restructuring financially troubled companies by permitting the adjustment of the interests of creditors,
shareholders and other interested parties. On April 2, 2001, the Tokyo District Court issued its official recognition
order approving the Reorganization Plan. The Reorganization Plan became effective immediately upon the
issuance of the recognition order, and is binding upon Gibraltar Life, its creditors, including policyholders, its
shareholders and other interested parties, whether or not they submitted claims or voted for or against the plan.
The Reorganization Plan included the extinguishment of all existing stock for no consideration and the issuance
of 1.0 million new shares of common stock. Also under the Reorganization Plan, Gibraltar Life was discharged
from all financial indebtedness, retaining only liabilities under insurance policies and contracts, certain pension
liabilities, liabilities incurred in the ordinary course of business and certain other claims. Gibraltar Life’s in force
insurance policies, except for group life, collective term and reinsurance policies, were restructured such that
guaranteed interest rates and cash surrender values were reduced and special surrender charges imposed. Pursuant
to the Reorganization Plan, on April 19, 2001 the Company contributed ¥50 billion ($395 million based on
currency exchange rates at that time) in cash to Gibraltar Life’s capital and on April 20, 2001 received 100% of
Gibraltar Life’s newly issued common stock. The Company also provided ¥98 billion ($775 million based on
currency exchange rates at that time) to Gibraltar Life in the form of a subordinated loan.
In years four and eight following the recognition of the Reorganization Plan by the Tokyo District Court, a
special dividend to certain Gibraltar Life policyholders will be payable based on 70% of net realized investment
gains, if any, over the value included in the Reorganization Plan of real estate and loans, net of transaction costs
and taxes. As of December 31, 2002, a liability of $726 million is included in “Policyholders’ dividends” which is
based on the difference between the current estimated fair values of loans and real estate at the date of the
Consolidated Statements of Financial Position and the value of such assets included in the Reorganization Plan.
For purposes of inclusion in the Company’s Consolidated Financial Statements, Gibraltar Life has adopted a
November 30 fiscal year end; therefore, the consolidated financial statements include Gibraltar Life’s assets and
liabilities as of November 30, 2002 and 2001, and Gibraltar Life’s results of operations for the periods April 2,
2001 through November 30, 2001 and December 1, 2001 through November 30, 2002. The Company’s
Consolidated Financial Statements include income from continuing operations before income taxes for Gibraltar
Life of $200 million and $238 million for the years ended December 31, 2002 and 2001, respectively.
Prudential Financial 2002 Annual Report 103