Prudential 2003 Annual Report Download - page 116

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
3. ACQUISITIONS AND DISPOSITIONS (continued)
Investment in Wachovia Securities
On July 1, 2003, the Company completed the combination of its retail securities brokerage and clearing operations
with those of Wachovia Corporation (“Wachovia”) to form a joint venture, Wachovia Securities Financial Holdings,
LLC (“Wachovia Securities”). The Company has a 38% ownership interest in the joint venture, while Wachovia owns
the remaining 62%. The transaction included certain assets and liabilities of the Company’s securities brokerage
operations but did not include its equity sales, trading and research operations. As part of the transaction the Company
retained certain assets and liabilities related to the contributed businesses, including liabilities for certain litigation and
regulatory matters. The Company accounts for its 38% ownership of the joint venture under the equity method of
accounting; periods prior to July 1, 2003, continue to reflect the results of the Company’s previously wholly-owned
securities brokerage operations on a fully consolidated basis.
Results for the year ended December 31, 2003, include a pre-tax gain of $22 million from the combination of the
businesses.
The Company recognized pre-tax equity earnings from Wachovia Securities of $56 million for the year ended
December 31, 2003. The pre-tax equity earnings from Wachovia Securities are included in “Commissions and other
income” within the Consolidated Statement of Operations. The Company’s investment in Wachovia Securities as of
December 31, 2003, was $1 billion and is included in “Other assets” in the Consolidated Statement of Financial
Position.
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 primarily
offers individual life insurance in Japan, and its distribution is primarily through an agency force and affinity groups.
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 former 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,
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