Prudential 2002 Annual Report Download - page 24
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Please find page 24 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.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
Demutualization and Related Transactions
On the date of demutualization, Prudential Insurance converted from a mutual life insurance company owned
by its policyholders to a stock life insurance company and became an indirect, wholly owned subsidiary of
Prudential Financial. On that date, eligible policyholders, as defined in the Plan of Reorganization, received
shares of Prudential Financial’s Common Stock or the right to receive cash or policy credits, which are increases
in policy values or increases in other policy benefits, upon the extinguishment of all membership interests in
Prudential Insurance.
On the date of demutualization, Prudential Financial completed an initial public offering of 126.5 million
shares of its Common Stock at an initial public offering price of $27.50 per share, including 16.5 million shares
issued as a result of the exercise of the over-allotment option granted to underwriters in the initial public offering.
Also on the date of demutualization, Prudential Financial completed the sale, through a private placement, of 2.0
million shares of Class B Stock, a separate class of common stock, at a price of $87.50 per share. The Common
Stock reflects the performance of the Financial Services Businesses and the Class B Stock reflects the
performance of the Closed Block Business, discussed below. Collectively, the Financial Services Businesses and
the Closed Block Business are referred to as the “Businesses.” In addition, on the date of demutualization,
Prudential Financial issued 13.8 million 6.75% equity security units for gross proceeds of $690 million, including
as a component thereof redeemable capital securities of Prudential Financial Capital Trust I, a statutory business
trust that is consolidated in our financial statements. Furthermore, Prudential Holdings, LLC (“PHLLC”), a
wholly owned subsidiary of Prudential Financial that owns the capital stock of Prudential Insurance, issued $1.75
billion in senior secured notes (the “IHC debt”), a portion of which were insured by a bond insurer.
Concurrent with the demutualization, various subsidiaries of Prudential Insurance were reorganized (or
“destacked”) becoming direct or indirect subsidiaries of Prudential Financial. To effect the destacking, Prudential
Insurance distributed to Prudential Financial, directly or indirectly, the following subsidiaries, together with
certain related assets and liabilities:
• our property and casualty insurance companies;
• our principal securities brokerage companies;
• our international insurance companies;
• our principal asset management operations; and
• our international securities and investments, domestic banking, and residential real estate brokerage
franchise and relocation services operations.
The Plan of Reorganization required us to establish and operate a regulatory mechanism known as the
“Closed Block.” The Closed Block is designed generally to provide for the reasonable expectations for future
policy dividends after demutualization of holders of policies included in the Closed Block by allocating assets that
will be used for payment of benefits, including policyholder dividends, on these policies. See Note 10 to the
Consolidated Financial Statements and “—Financial Services Businesses and Closed Block Business” for more
information on the Closed Block.
Financial Services Businesses and Closed Block Business
2002 Reorganization
In August 2002, we implemented organizational changes within the Financial Services Businesses. The
discussion below presents the results of our divisions and segments on a basis consistent with the new
organization structure. The reclassifications associated with the realignment of our divisions and segments had no
impact on total adjusted operating income (defined below under “—Consolidated Results of Operations”) or net
income of the Financial Services Businesses or Closed Block Business.
Prudential Financial 2002 Annual Report 23