Prudential 2015 Annual Report Download - page 159

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
The master trust’s payment obligations under each of the asset-backed notes are secured by corresponding payment obligations of a
third-party financial institution and a portfolio of specified assets that have an aggregate value at least equal to the principal amount of the
applicable asset-backed note. The principal amount of each asset-backed note is payable to PRIAC in cash at any time upon demand by
PRIAC or, if not earlier paid, at maturity. Each of the limited recourse notes obligates Prudential Financial to reimburse the applicable
third-party financial institution for any principal payments received on the corresponding asset-backed note, but there is no obligation to
reimburse any portion of a principal payment that is needed by PRIAC to pay then current claims to its policyholders. Each limited
recourse note bears interest at a rate equal to the rate on the corresponding asset-backed note, plus an amount representing fees payable to
the applicable third-party financial institution. As of December 31, 2015, no principal payments have been received or are currently due on
the asset-backed notes and, as a result, there was no payment obligation under the limited recourse notes. Accordingly, the notes are not
reflected in the Company’s Consolidated Financial Statements as of December 31, 2015.
Interest Expense
In order to modify exposure to interest rate and currency exchange rate movements, the Company utilizes derivative instruments,
primarily interest rate swaps, in conjunction with some of its debt issues. The impact of these derivative instruments are not reflected in the
rates presented in the tables above. For those derivative instruments that qualify for hedge accounting treatment, interest expense was
increased by $7 million, $22 million and $23 million for the years ended December 31, 2015, 2014 and 2013, respectively. See Note 21 for
additional information on the Company’s use of derivative instruments.
Interest expense for short-term and long-term debt was $1,328 million, $1,934 million and $1,419 million for the years ended
December 31, 2015, 2014 and 2013, respectively. This includes interest expense of $11 million, $11 million and $6 million for the years
ended December 31, 2015, 2014 and 2013, respectively, reported in “Net investment income.”
15. EQUITY
On the date of demutualization, Prudential Financial completed an initial public offering of its Common Stock at an initial public
offering price of $27.50 per share. The shares of Common Stock issued were in addition to shares of Common Stock the Company
distributed to policyholders as part of the demutualization. The Common Stock is traded on the New York Stock Exchange under the
symbol “PRU”. Through December 31, 2014, the Common Stock reflected the performance of the Company’s former Financial Services
Businesses. As a result of the Class B Repurchase, beginning in 2015, the Common Stock reflects the consolidated performance of
Prudential Financial.
Also on the date of demutualization, Prudential Financial completed the sale, through a private placement, of 2.0 million shares of
Class B Stock at a price of $87.50 per share. The Class B Stock was a separate class of common stock not publicly- traded, which reflected
the performance of the Company’s former Closed Block Business. As part of the Class B Repurchase, Prudential Financial repurchased and
canceled all of the 2.0 million shares of the Class B Stock.
The changes in the number of shares of Common Stock issued, held in treasury and outstanding, are as follows for the periods indicated:
Common Stock
Issued
Held In
Treasury Outstanding
(in millions)
Balance, December 31, 2012 ...................................................................... 660.1 197.1 463.0
Common Stock issued ............................................................................ 0.0 0.0 0.0
Common Stock acquired .......................................................................... 0.0 10.0 (10.0)
Stock-based compensation programs(1) .............................................................. 0.0 (8.1) 8.1
Balance, December 31, 2013 ...................................................................... 660.1 199.0 461.1
Common Stock issued ............................................................................ 0.0 0.0 0.0
Common Stock acquired .......................................................................... 0.0 11.6 (11.6)
Stock-based compensation programs(1) .............................................................. 0.0 (5.3) 5.3
Balance, December 31, 2014 ...................................................................... 660.1 205.3 454.8
Common Stock issued ............................................................................ 0.0 0.0 0.0
Common Stock acquired .......................................................................... 0.0 12.1 (12.1)
Stock-based compensation programs(1) .............................................................. 0.0 (4.4) 4.4
Balance, December 31, 2015 ...................................................................... 660.1 213.0 447.1
(1) Represents net shares issued from treasury pursuant to the Company’s stock-based compensation programs.
In the event of a liquidation, dissolution or winding-up of the Company, holders of Common Stock would be entitled to receive a
proportionate share of the net assets of the Company that remain after paying all liabilities and the liquidation preferences of any preferred
stock.
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.”
Prudential Financial, Inc. 2015 Annual Report 157