Prudential 2003 Annual Report Download - page 140

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
12. STOCKHOLDERS’ EQUITY (continued)
Holders of Common Stock have no interest in a legal entity representing the Financial Services Businesses and
holders of the Class B Stock have no interest in a legal entity representing the Closed Block Business and holders of
each class of common stock are subject to all of the risks associated with an investment in the Company.
In the event of a liquidation, dissolution or winding-up of the Company, holders of Common Stock and holders of
Class B 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.
Dividends
The principal sources of funds available to Prudential Financial to meet its obligations, including the payment of
shareholder dividends, debt service, capital contributions to subsidiaries, and operating expenses, are cash and short-
term investments, dividends, returns of capital, and interest from its subsidiaries. The regulated insurance and various
other subsidiaries are subject to regulatory limitations on their payment of dividends and other transfers of funds to
Prudential Financial.
New Jersey insurance law provides that dividends or distributions may be declared or paid by Prudential
Insurance without prior regulatory approval only from unassigned surplus, as determined pursuant to statutory
accounting principles, less unrealized capital gains and certain other adjustments. Unassigned surplus of Prudential
Insurance was $1,557 million at December 31, 2003. There were applicable adjustments for unrealized capital gains of
$624 million at December 31, 2003. In addition, Prudential Insurance must obtain non-disapproval from the New
Jersey insurance regulator before paying a dividend if the dividend, together with other dividends or distributions made
within the preceding twelve months, would exceed the greater of 10% of Prudential Insurance’s surplus as of the
preceding December 31 or its net gain from operations for the twelve month period ending on the preceding December
31, excluding realized capital gains and losses.
The laws regulating dividends of Prudential Financial’s other insurance subsidiaries domiciled in other states are
similar, but not identical, to New Jersey’s. The laws of foreign countries may also limit the ability of the Company’s
insurance and other subsidiaries organized in those countries to pay dividends to Prudential Financial.
The declaration and payment of dividends on the Common Stock depends primarily upon the financial condition,
results of operations, cash requirements, future prospects and other factors relating to the Financial Services Businesses.
Dividends declared and paid on the Common Stock do not depend upon and are not affected by the financial performance
of the Closed Block Business, unless the Closed Block Business is in financial distress. Dividends declared and paid on
the Common Stock are not affected by decisions with respect to dividend payments on the Class B Stock except as
indicated in the following paragraph. Furthermore, dividends on the Common Stock are limited to both the amount that is
legally available for payment under New Jersey corporate law if the Financial Services Businesses were treated as a
separate corporation thereunder and the amount that is legally available for payment under New Jersey corporate law on a
consolidated basis after taking into account dividends on the Class B Stock.
The declaration and payment of dividends on the Class B Stock depends upon the financial performance of the
Closed Block Business and, as the Closed Block matures, the holders of the Class B Stock will receive the surplus of
the Closed Block Business no longer required to support the Closed Block for regulatory purposes. Dividends on the
Class B Stock are payable in an aggregate amount per year at least equal to the lesser of (1) a Target Dividend Amount
of $19.25 million or (2) the CB Distributable Cash Flow for such year, which is a measure of the net cash flows of the
Closed Block Business. Notwithstanding this formula, as with any common stock, Prudential Financial will retain the
flexibility to suspend dividends on the Class B Stock; however, if CB Distributable Cash Flow exists and Prudential
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