Prudential 2003 Annual Report Download - page 139

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PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
11. EQUITY SECURITY UNITS (continued)
Prior to December 31, 2003, 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.” In addition, the
interest payments on the debentures by Prudential Financial and the corresponding interest income recognized by the
Trust are eliminated in consolidation and the distributions on the redeemable capital securities by the Trust are reported
within “General and administrative expenses.” The present value of the sum of the contract fee payments on the
purchase contracts of $26 million was recorded at issuance in 2001 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 debentures.
Effective December 31, 2003 the Company implemented the revised guidance under FIN No. 46. As a result, the
financial statements of the Trust, a variable interest entity, are no longer consolidated within the financial statements of
the Company, since the Company is not the primary beneficiary of the Trust. Accordingly, the $711 million of
Prudential Financial debentures maturing on November 15, 2006 is now reported as “Long-term debt,” and the
investment in common securities of $21 million is reported in “Other assets.” Additionally, beginning in 2004 the
distributions on the redeemable capital securities will no longer be recognized within the financial statements of the
Company, but will be replaced by the interest expenses attributable to the payments on the debentures. The contract fee
payments and the issuance cost in connection with the offering of the Units will continue to be accounted for as
discussed above.
12. 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, 2003 and 2002.
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 issued in the
offerings were in addition to shares of Common Stock the Company distributed to policyholders as part of the
demutualization. On December 21, 2001, Prudential Financial issued an additional 16.5 million shares of Common
Stock at an offering price of $27.50 per share as a result of the exercise of the over-allotment option granted to
underwriters in the initial public offering. The Common Stock is traded on the New York Stock Exchange under the
symbol “PRU.” 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 is a separate class
of common stock which is not publicly traded. The Common Stock reflects the performance of the Financial Services
Businesses and the Class B Stock reflects the performance of the Closed Block Business.
Prudential Financial 2003 Annual Report 137