Prudential 2002 Annual Report Download - page 123
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Please find page 123 of the 2002 Prudential annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
13. EQUITY SECURITY UNITS (continued)
Holders of the purchase contracts receive, from Prudential Financial, quarterly contract fee payments at an
annual rate of 1.41% of the stated amount of $50 per purchase contract through and including the settlement date.
Prudential Financial has the option to defer contract fee payments on the purchase contracts; however, the
payments cannot be deferred beyond the settlement date. Holders of the redeemable capital securities receive,
from the Trust, quarterly cumulative cash distributions at an annual rate of 5.34% of the stated liquidation amount
of $50 per redeemable capital security through and including August 15, 2004. The quarterly distribution rate on
the redeemable capital securities may be reset, in conjunction with a planned remarketing of the redeemable
capital securities on August 15, 2004, effective for distributions and interest accrued from August 16, 2004 to
November 15, 2006. If Prudential Financial defers interest payments on the debentures as noted above, the Trust
will also defer distributions on the Trust securities. During any period in which payments are deferred on the
purchase contracts or on the debentures and Trust securities, Prudential Financial cannot declare or pay any
dividends or distributions on its capital stock, other than the Class B stock, or make certain other payments
relating to the capital stock, other than the Class B Stock, and debt of the Company that is equal to or junior to the
debentures.
Prudential Financial has irrevocably guaranteed, on a senior and unsecured basis, distributions on and the
stated liquidation amount of the redeemable capital securities to the extent of available Trust funds. The guarantee
is unsecured and ranks equally in right of payment to all other senior unsecured debt of Prudential Financial.
Prudential Financial currently has no outstanding secured or other debt that would rank senior to this guarantee;
however, Prudential Financial’s guarantee is effectively junior to the debt and other liabilities of its subsidiaries.
The financial statements of the Trust are consolidated within the financial statements of the Company.
Accordingly, the investment in the common securities of the Trust by Prudential Financial and the investment in
the debentures of Prudential Financial by the Trust are eliminated in consolidation and the redeemable capital
securities, to which the entire gross proceeds of $690 million from the issuance of the Units have been allocated,
are reported as “Guaranteed beneficial interest in Trust holding solely debentures of Parent.” Distributions on the
redeemable capital securities are included within “General and administrative expenses.” The initial present value
of the sum of the contract fee payments on the purchase contracts of $26 million has been recorded as a charge
directly to equity with a corresponding credit to liabilities. The contract fee payments are allocated to the liability
established and interest expense as the payments are made. Total issuance costs incurred in connection with the
offering of the Units, which were paid by Prudential Financial, amounted to $27 million and are included in
“Other assets.” The issuance costs are being amortized over the life of the redeemable capital securities.
14. STOCKHOLDERS’ EQUITY
Preferred Stock
Prudential Financial adopted a shareholder rights plan (the “rights plan”) under which each outstanding share
of Common Stock is coupled with a shareholder right. The rights plan is not applicable to any Class B Stock.
Each right initially entitles the holder to purchase one one-thousandth of a share of a series of Prudential Financial
preferred stock upon payment of the exercise price. At the time of the demutualization, the Board of Directors of
Prudential Financial determined that the initial exercise price per right is $110, subject to adjustment from time to
time as provided in the rights plan. There was no preferred stock outstanding at December 31, 2002 and 2001.
Common Stock and Class B Stock
On the date of demutualization, Prudential Financial completed an initial public offering of 110.0 million
shares of its Common Stock at an initial public offering price of $27.50 per share. The shares of Common Stock
Growing and Protecting Your Wealth122