Prudential 2015 Annual Report Download - page 160

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
In June 2013, Prudential Financial’s Board of Directors authorized the Company to repurchase at management’s discretion up to $1.0
billion of its outstanding Common Stock from July 1, 2013 through June 30, 2014. Under this authorization, 12.0 million shares of the
Company’s Common Stock were repurchased at a total cost of $1.0 billion, of which 5.9 million shares were repurchased in the first six
months of 2014 at a total cost of $500 million.
In June 2014, Prudential Financial’s Board of Directors authorized the Company to repurchase at management’s discretion up to $1.0
billion of its outstanding Common Stock from July 1, 2014 through June 30, 2015. Under this authorization, 11.7 million shares of the
Company’s Common Stock were repurchased at a total cost of $1.0 billion, of which 6.0 million shares were repurchased in the first six
months of 2015 at a total cost of $500 million.
In June 2015, Prudential Financial’s Board of Directors authorized the Company to repurchase at management’s discretion up to $1.0
billion of its outstanding Common Stock from July 1, 2015 through June 30, 2016. As of December 31, 2015, 6.1 million shares of the
Company’s Common Stock were repurchased under this authorization at a total cost of $500 million.
In December 2015, 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 from January 1, 2016 through December 31, 2016. Effective January 1, 2016, this
authorization superseded the Company’s $1.0 billion share repurchase authorization that was announced in June 2015, covering the period
from July 1, 2015 through June 30, 2016.
The timing and amount of share repurchases are determined by management based upon market conditions and other considerations,
and repurchases may be effected in the open market, through derivative, accelerated repurchase and other negotiated transactions and
through prearranged trading plans complying with Rule 10b5-1(c) under the Exchange Act of 1934. Numerous factors could affect the
timing and amount of any future repurchases under the share repurchase authorization, including increased capital needs of the Company
due to changes in regulatory capital requirements, opportunities for growth and acquisitions, and the effect of adverse market conditions on
the segments.
Class B Stock
The Company had 2.0 million shares of Class B Stock issued and outstanding as of December 31, 2012 and 2013. On December 1,
2014, Prudential Financial entered into a Share Repurchase Agreement with the holders of the Class B Stock to repurchase all of the
2.0 million outstanding shares of Class B Stock for an aggregate cash purchase price of $650.8 million. As a result, all of the outstanding
shares of Class B Stock were reclassified as “held in treasury” as of December 31, 2014, resulting in a reduction to “Total Prudential
Financial, Inc. equity.” As discussed in Note 1, on January 2, 2015, the Company repurchased and canceled all of the shares of the Class B
Stock, resulting in the elimination of the Class B Stock held in treasury, a $483.8 million decrease in “Retained earnings” and a $167.0
million decrease in “Additional paid-in capital.”
In accordance with the terms of the Share Repurchase Agreement, the holders of a majority of the Class B Stock have exercised their
right to dispute the calculation of the purchase price. As a result of this dispute, the final purchase price of the Class B Stock is expected to
change, with a corresponding adjustment recorded within “Retained earnings.”
Preferred Stock
As of December 31, 2015, 2014 and 2013, the Company had no preferred stock outstanding.
Dividends
The declaration and payment of dividends on the Common Stock is limited by New Jersey corporate law, pursuant to which Prudential
Financial is prohibited from paying a Common Stock dividend if, after giving effect to that dividend, either (a) the Company would be
unable to pay its debts as they become due in the usual course of its business or (b) the Company’s total assets would be less than its
liabilities. In addition, the terms of the Company’s outstanding junior subordinated debt include a “dividend stopper” provision that
restricts the payment of dividends on the Common Stock if interest payments are not made on the junior subordinated debt. Further, as a
Designated Financial Company under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), Prudential
Financial is expected to be subject to stricter requirements and limitations regarding capital, leverage and liquidity. Prudential Financial’s
compliance with these and other requirements under Dodd-Frank could limit its ability to pay Common Stock dividends in the future.
As of December 31, 2015, the Company’s U.S. GAAP retained earnings were $18,931 million. Other than the above limitations, this
amount is free of restrictions for the payment of Common Stock dividends. However, Common Stock dividends will be dependent upon
financial conditions, results of operations, cash needs, future prospects and other factors, including cash available to Prudential Financial, the
parent holding company. The principal sources of funds available to Prudential Financial are dividends and returns of capital from its
subsidiaries, repayments of operating loans from its subsidiaries and cash and short-term investments. The primary uses of funds at
Prudential Financial include servicing its debt, operating expenses, capital contributions and loans to subsidiaries, the payment of declared
shareholder dividends and repurchases of outstanding shares of Common Stock if executed under Board authority. As of December 31, 2015,
Prudential Financial had cash and short-term investments, excluding amounts held in an intercompany liquidity account, of $5,062 million.
158 Prudential Financial, Inc. 2015 Annual Report