Prudential 2006 Annual Report Download - page 146

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
13. STOCKHOLDERS’ EQUITY (continued)
In November 2005, Prudential Financial’s Board of Directors authorized the Company to repurchase up to $2.5 billion of its
outstanding Common Stock in calendar year 2006. During 2006, the Company acquired 32.4 million shares of its outstanding Common
Stock at a total cost of $2.5 billion.
In November 2006, Prudential Financial’s Board of Directors authorized the Company to repurchase up to $3.0 billion of its
outstanding Common Stock in calendar year 2007. The timing and amount of any repurchases under this authorization will be determined
by management based upon market conditions and other considerations, and the 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)
of the Exchange Act. The 2007 stock repurchase program supersedes all previous repurchase programs.
Stock Conversion Rights of the Class B Stock
Prudential Financial may, at its option, at any time, exchange all outstanding shares of Class B Stock into such number of shares of
Common Stock as have an aggregate average market value equal to 120% of the appraised fair market value of the outstanding shares of
Class B Stock.
Holders of Class B Stock will be permitted to convert their shares of Class B Stock into such number of shares of Common Stock as
have an aggregate average market value equal to 100% of the appraised fair market value of the outstanding shares of Class B Stock (1) in
the holder’s sole discretion, in the year 2016 or at any time thereafter, and (2) at any time in the event that (a) the Class B Stock will no
longer be treated as equity of Prudential Financial for federal income tax purposes or (b) the New Jersey Department of Banking and
Insurance amends, alters, changes or modifies the regulation of the Closed Block, the Closed Block Business, the Class B Stock or the IHC
debt in a manner that materially adversely affects the “CB Distributable Cash Flow”; provided, however, that in no event may a holder of
Class B Stock convert shares of Class B Stock to the extent such holder immediately upon such conversion, together with its affiliates,
would be the beneficial owner (as defined under the Securities Exchange Act of 1934) of in excess of 9.9% of the total outstanding voting
power of Prudential Financial’s voting securities. In the event a holder of shares of Class B Stock requests to convert shares pursuant to
clause (2)(a) in the preceding sentence, Prudential Financial may elect, instead of effecting such conversion, to increase the Target
Dividend Amount to $12.6875 per share per annum retroactively from the time of issuance of the Class B Stock.
Dividends
The principal sources of funds available to Prudential Financial, the parent holding company, to meet its obligations, including the
payment of shareholder dividends, debt service, operating expenses, capital contributions and obligations to subsidiaries are dividends,
returns of capital, interest income from its subsidiaries and cash and short-term investments. 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.
Pursuant to Gibraltar Life’s reorganization, in addition to regulatory restrictions, there are certain restrictions that preclude Gibraltar Life
from paying dividends to Prudential Financial in the near term.
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 investment gains
and revaluation of assets. Unassigned surplus of Prudential Insurance was $2,825 million at December 31, 2006. There were applicable
adjustments for unrealized gains of $1,239 million at December 31, 2006. 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 ($5,973
million as of December 31, 2006) or its statutory net gain from operations for the twelve month period ending on the preceding December 31,
excluding realized investment gains and losses ($263 million for the year ended December 31, 2006).
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. 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
PRUDENTIAL FINANCIAL, INC. 2006 ANNUAL REPORT
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