EQUITY

On the date of demutualization, Prudential Financial completed an initial public offering of its Common Stock at an initial public offering price of $27.50 per share. The shares of Common Stock issued were in addition to shares of Common Stock the Company distributed to policyholders as part of the demutualization. The Common Stock is traded on the New York Stock Exchange under the symbol “PRU”. Through December 31, 2014, the Common Stock reflected the performance of the Company’s former Financial Services Businesses. As a result of the Class B Repurchase described below under “—Class B Stock,” beginning in 2015, the Common Stock reflects the consolidated performance of Prudential Financial.

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 was a separate class of common stock not traded publicly, which reflected the performance of the Company’s former Closed Block Business. As part of the Class B Repurchase, Prudential Financial repurchased and canceled all of the 2.0 million shares of the Class B Stock.

The changes in the number of shares of Common Stock issued, held in treasury and outstanding, are as follows for the periods indicated:



	Common Stock
	Issued	Held In Treasury		Outstanding
	Issued	Held In Treasury		Outstanding

	(in millions)
Balance, December 31, 2014	660.1	205.3		454.8
Common Stock issued	0.0	0.0		0.0
Common Stock acquired	0.0	12.1		(12.1	)
Stock-based compensation programs(1)	0.0	(4.4	)	4.4
Balance, December 31, 2015	660.1	213.0		447.1
Common Stock issued	0.0	0.0		0.0
Common Stock acquired	0.0	25.1		(25.1	)
Stock-based compensation programs(1)	0.0	(7.6	)	7.6
Balance, December 31, 2016	660.1	230.5		429.6
Common Stock issued	0.0	0.0		0.0
Common Stock acquired	0.0	11.5		(11.5	)
Stock-based compensation programs(1)	0.0	(4.5	)	4.5
Balance, December 31, 2017	660.1	237.5		422.6

__________


(1)	Represents net shares issued from treasury pursuant to the Company’s stock-based compensation programs.

In the event of a liquidation, dissolution or winding-up of the Company, holders of Common 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.

Common Stock Held in Treasury

Common Stock held in treasury is accounted for at average cost. Gains resulting from the reissuance of “Common Stock held in treasury” are credited to “Additional paid-in capital.” Losses resulting from the reissuance of “Common Stock held in treasury” are charged first to “Additional paid-in capital” to the extent the Company has previously recorded gains on treasury share transactions, then to “Retained earnings.”

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 during the period from January 1, 2016 through December 31, 2016. Effective January 1, 2016, this authorization superseded the Company’s previous $1.0 billion share repurchase authorization that covered the period from July 1, 2015 through June 30, 2016. In August 2016, the Board of Directors authorized a $500 million increase to the authorization for calendar year 2016. As a result, the Company’s aggregate share repurchase authorization for the full year 2016 was $2.0 billion. As of December 31, 2016, 25.1 million shares of the Company’s Common Stock were repurchased under this authorization at a total cost of $2.0 billion.

In December 2016, Prudential Financial’s Board of Directors authorized the Company to repurchase at management’s discretion up to $1.25 billion of its outstanding Common Stock from January 1, 2017 through December 31, 2017. As of December 31, 2017, 11.5 million shares of the Company’s Common Stock were repurchased under this authorization at a total cost of $1.25 billion.

In December 2017, 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 during the period from January 1, 2018 through December 31, 2018.

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 Securities Exchange Act of 1934 (the “Exchange Act”). 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

On January 2, 2015, pursuant to a share repurchase agreement entered into on December 1, 2014, between the Company and the holders of the Class B Stock, the Company repurchased and canceled all of the shares of the Class B Stock for an aggregate cash purchase price of $651 million, resulting in the elimination of the Class B Stock held in treasury, a $484 million decrease in “Retained earnings” and a $167 million decrease in “Additional paid-in capital.”

In accordance with the terms of the Share Repurchase Agreement, the holders of the Class B Stock subsequently exercised their right to dispute the calculation of the purchase price. This dispute was resolved during the first quarter of 2016, resulting in an increase to the cash purchase price of $119 million, bringing the total aggregate purchase price to $770 million. The increase to the cash purchase price resulted in a corresponding decrease in “Retained earnings.”

Preferred Stock

As of December 31, 2017, 2016 and 2015, 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.

As of December 31, 2017, the Company’s U.S. GAAP retained earnings were $28,504 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, loans from its subsidiaries, repayments of operating loans from its subsidiaries, and cash and other highly liquid assets. 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, 2017, Prudential Financial had highly liquid assets predominantly including cash, short-term investments, U.S. Treasury securities, obligations of other U.S. government authorities and agencies, and/or foreign government bonds of $4,376 million, excluding amounts held in an intercompany liquidity account.

Future cash available at Prudential Financial to support the payment of future Common Stock dividends is dependent on the receipt of dividends or other funds from its subsidiaries, the majority of which are subject to comprehensive regulation, including limitations on their payment of dividends and other transfers of funds, which are discussed below.

With respect to Prudential Insurance, the Company’s primary domestic insurance subsidiary, New Jersey insurance law provides that, except in the case of extraordinary dividends (as described below), all dividends or other distributions paid by Prudential Insurance may be paid only from unassigned surplus, as determined pursuant to statutory accounting principles, less cumulative unrealized investment gains and losses and revaluation of assets as of the prior calendar year-end. As of December 31, 2017, Prudential Insurance’s unassigned surplus was $8,450 million, and it recorded applicable adjustments for cumulative unrealized investment gains of $726 million. Prudential Insurance must give prior notification to the NJDOBI of its intent to pay any such dividend or distribution. Also, if any dividend, together with other dividends or distributions made within the preceding twelve months, exceeds the greater of (i) 10% of statutory capital and surplus as of the preceding December 31 ($9,948 million as of December 31, 2017) or (ii) its statutory net gain from operations excluding realized investment gains and losses for the twelve month period ending on the preceding December 31 ($505 million for the year ended December 31, 2017), the dividend is considered to be an “extraordinary dividend” and requires the prior approval of the NJDOBI. Under New Jersey insurance law, Prudential Insurance is permitted to pay an ordinary dividend of up to $995 million after June 28, 2018, without prior approval of the NJDOBI.

The laws regulating dividends of the states where the Company’s other domestic insurance subsidiaries are domiciled are similar, but not identical, to New Jersey. In Arizona, if any dividend, together with other dividends or distributions made within the preceding twelve months, exceeds the lesser of (i) 10% of statutory capital and surplus as of the preceding December 31 or (ii) its statutory net gain from operations excluding realized investment gains and losses for the twelve month period ending on the preceding December 31, the dividend is considered to be an “extraordinary dividend” and requires prior approval of the Arizona Department of Insurance. Under Arizona insurance law, Prudential Annuities Life Assurance Corporation (“PALAC”), an Arizona domiciled insurer that is a subsidiary of Prudential Financial, is permitted to pay an ordinary dividend of up to $806 million in 2018, without prior approval of the Arizona Department of Insurance. Of the $806 million, $156 million is permitted to be paid after September 28, 2018, and $650 million is permitted to be paid after December 21, 2018, without prior approval of the Arizona Department of Insurance.

The Company’s international insurance operations are subject to dividend restrictions from the regulatory authorities in the jurisdictions in which they operate. With respect to The Prudential Life Insurance Company Ltd. (“Prudential of Japan”) and Gibraltar Life, the Company’s most significant international insurance subsidiaries, both of which are domiciled in Japan, Japan insurance law provides that common stock dividends may be paid in an amount of up to 83% of prior fiscal year statutory after-tax earnings, after certain reserving thresholds are met, including providing for policyholder dividends. If statutory retained earnings exceed 100% of statutory paid-in capital, 100% of prior year statutory after-tax earnings may be paid, after reserving thresholds are met. Dividends in excess of these amounts and other forms of capital distribution require the prior approval of the Japan Financial Services Agency (“FSA”). Additionally, Prudential of Japan and Gibraltar Life must give prior notification to the FSA of their intent to pay any dividend or distribution. In addition to paying common stock dividends, Prudential of Japan and Gibraltar Life may return capital to Prudential Financial through other means, such as the repayment of subordinated debt or preferred stock obligations held by Prudential Financial or other affiliates.

As of December 31, 2017, Prudential Holdings of Japan, Inc. (“PHJ”), the parent of the Company’s Japanese operations, retained $248 million of dividends received from its international insurance subsidiaries in 2016, that remained available to be paid as a dividend to Prudential Financial. The current regulatory fiscal year end for both Prudential of Japan and Gibraltar Life is March 31, 2018, after which time the common stock dividend amount permitted to be paid without prior approval from the FSA can be determined.

In addition, although prior regulatory approval may not be required by law for the payment of dividends up to the limitations described above, in practice, the Company would typically discuss any dividend payments with the applicable regulatory authority prior to payment. Additionally, the payment of dividends by the Company’s subsidiaries is subject to declaration by their Board of Directors and may be affected by market conditions and other factors.

Statutory Net Income, Capital and Surplus

The Company’s domestic insurance subsidiaries are required to prepare statutory financial statements in accordance with statutory accounting practices prescribed or permitted by the insurance department of the state of domicile. Statutory accounting practices primarily differ from U.S. GAAP by charging policy acquisition costs to expense as incurred, establishing future policy benefit liabilities using different actuarial assumptions as well as valuing investments and certain assets and accounting for deferred taxes on a different basis. Statutory net income (loss) of Prudential Insurance amounted to $(217) million, $5,214 million and $5,253 million for the years ended December 31, 2017, 2016 and 2015, respectively. Statutory capital and surplus of Prudential Insurance amounted to $9,948 million and $11,290 million at December 31, 2017 and 2016, respectively. Statutory net income (loss) of PALAC amounted to $3,911 million, $(2,018) million and $340 million for the years ended December 31, 2017, 2016 and 2015, respectively. Statutory capital and surplus of PALAC amounted to $8,059 million and $5,718 million at December 31, 2017 and 2016, respectively.

The risk-based capital (“RBC”) ratio is a primary measure by which the Company and its insurance regulators evaluate the capital adequacy of Prudential Insurance and the Company’s other domestic insurance subsidiaries. RBC is determined by NAIC-prescribed formulas that consider, among other things, risks related to the type and quality of the invested assets, insurance-related risks associated with an insurer’s products and liabilities, interest rate risks and general business risks. If a subsidiary’s Total Adjusted Capital (“TAC”), as calculated in a manner prescribed by the NAIC, falls below the Company Action Level RBC, corrective action is required. As of December 31, 2017, Prudential Insurance and PALAC both had TAC levels in excess of 4.0 times the regulatory required minimums that would require corrective action.

The Company’s international insurance subsidiaries prepare financial statements in accordance with local regulatory requirements. These statutory accounting practices differ from U.S. GAAP primarily by charging policy acquisition costs to expense as incurred and establishing future policy benefit liabilities using different actuarial assumptions, as well as valuing investments and certain assets and accounting for deferred taxes on a different basis.

The FSA utilizes a solvency margin ratio to evaluate the capital adequacy of Japanese insurance companies. The solvency margin ratio considers the level of solvency margin capital to a solvency margin risk amount, which is calculated in a similar manner to RBC. As of December 31, 2017, Prudential of Japan and Gibraltar Life both had solvency margin capital in excess of 3.5 times the regulatory required minimums that would require corrective action.

All of the Company’s domestic and international insurance subsidiaries have capital and surplus levels that exceed their respective regulatory minimum requirements, and none utilized prescribed or permitted practices that vary materially from the practices prescribed by the NAIC or equivalent regulatory bodies for results reported as of December 31, 2017 and 2016, respectively, or for the years ended December 31, 2017, 2016 and 2015, respectively.

Accumulated Other Comprehensive Income (Loss)

The balance of and changes in each component of “Accumulated other comprehensive income (loss) attributable to Prudential Financial, Inc.” for the years ended December 31, are as follows:



	Accumulated Other Comprehensive Income (Loss) Attributable to Prudential Financial, Inc.
	Foreign Currency Translation Adjustment			Net Unrealized Investment Gains (Losses)(1)			Pension and Postretirement Unrecognized Net Periodic Benefit (Cost)			Total Accumulated Other Comprehensive Income (Loss)
	(in millions)
Balance, December 31, 2014	$	(975	)	$	19,251		$	(2,226	)	$	16,050
Change in OCI before reclassifications	(245		)	(3,161		)	(457		)	(3,863		)
Amounts reclassified from AOCI	17			(2,325		)	193			(2,115		)
Income tax benefit (expense)	116			2,008			89			2,213
Balance, December 31, 2015	(1,087		)	15,773			(2,401		)	12,285
Change in OCI before reclassifications	199			5,176			(468		)	4,907
Amounts reclassified from AOCI	13			(1,493		)	214			(1,266		)
Income tax benefit (expense)	(98		)	(1,285		)	78			(1,305		)
Balance, December 31, 2016	(973		)	18,171			(2,577		)	14,621
Change in OCI before reclassifications	768			4,026			(153		)	4,641
Amounts reclassified from AOCI	1			(1,629		)	224			(1,404		)
Income tax benefit (expense)	(65		)	(600		)	(119		)	(784		)
Balance, December 31, 2017	$	(269	)	$	19,968		$	(2,625	)	$	17,074

__________


(1)	Includes cash flow hedges of $(39) million, $1,316 million and $1,165 million as of December 31, 2017, 2016, and 2015, respectively.

Reclassifications out of Accumulated Other Comprehensive Income (Loss)



	Years Ended December 31,									Affected line item in Consolidated Statements of Operations
	2017			2016			2015			Affected line item in Consolidated Statements of Operations
	(in millions)
Amounts reclassified from AOCI(1)(2):
Foreign currency translation adjustment:
Foreign currency translation adjustment	$	(3	)	$	(13	)	$	(8	)	Realized investment gains (losses), net
Foreign currency translation adjustment	2			0			(9		)	Other income
Total foreign currency translation adjustment	(1		)	(13		)	(17		)
Net unrealized investment gains (losses):
Cash flow hedges—Interest Rate	(2		)	(5		)	(7		)	(3)
Cash flow hedges—Currency/Interest rate	(16		)	456			247			(3)
Net unrealized investment gains (losses) on available-for-sale securities	1,647			1,042			2,085
Total net unrealized investment gains (losses)	1,629			1,493			2,325			(4)
Amortization of defined benefit items:
Prior service cost	3			8			13			(5)
Actuarial gain (loss)	(227		)	(222		)	(206		)	(5)
Total amortization of defined benefit items	(224		)	(214		)	(193		)
Total reclassifications for the period	$	1,404		$	1,266		$	2,115

__________


(1)	All amounts are shown before tax.


(2)	Positive amounts indicate gains/benefits reclassified out of AOCI. Negative amounts indicate losses/costs reclassified out of AOCI.


(3)	See Note 21 for additional information on cash flow hedges.


(4)	See table below for additional information on unrealized investment gains (losses), including the impact on deferred policy acquisition and other costs, future policy benefits and policyholders’ dividends.


(5)	See Note 18 for information on employee benefit plans.

Net Unrealized Investment Gains (Losses)

Net unrealized investment gains (losses) on securities classified as available-for-sale and certain other long-term investments and other assets are included in the Company’s Consolidated Statements of Financial Position as a component of AOCI. Changes in these amounts include reclassification adjustments to exclude from “Other comprehensive income (loss)” those items that are included as part of “Net income” for a period that had been part of “Other comprehensive income (loss)” in earlier periods. The amounts for the periods indicated below, split between amounts related to fixed maturity securities on which an OTTI loss has been recognized, and all other net unrealized investment gains (losses), are as follows:

Net Unrealized Investment Gains (Losses) on Fixed Maturity Securities on which an OTTI loss has been recognized



	Net Unrealized Gains (Losses) on Investments			DAC, DSI, VOBA and Reinsurance Recoverables			Future Policy Benefits, Policyholders’ Account Balances and Reinsurance Payables			Policyholders’ Dividends			Deferred Income Tax (Liability) Benefit			Accumulated Other Comprehensive Income (Loss) Related To Net Unrealized Investment Gains (Losses)
	(in millions)
Balance, December 31, 2014	$	349		$	(6	)	$	3		$	(32	)	$	(110	)	$	204
Net investment gains (losses) on investments arising during the period	(3		)										1			(2		)
Reclassification adjustment for (gains) losses included in net income	(97		)										35			(62		)
Reclassification adjustment for OTTI losses excluded from net income(1)	(15		)										5			(10		)
Impact of net unrealized investment (gains) losses on DAC, DSI and VOBA				12									(4		)	8
Impact of net unrealized investment (gains) losses on future policy benefits and policyholders’ account balances							11						(4		)	7
Impact of net unrealized investment (gains) losses on policyholders’ dividends										1			0			1
Balance, December 31, 2015	234			6			14			(31		)	(77		)	146
Net investment gains (losses) on investments arising during the period	93												(31		)	62
Reclassification adjustment for (gains) losses included in net income	1												0			1
Reclassification adjustment for OTTI losses excluded from net income(1)	(16		)										5			(11		)
Impact of net unrealized investment (gains) losses on DAC, DSI and VOBA				(11		)							3			(8		)
Impact of net unrealized investment (gains) losses on future policy benefits and policyholders’ account balances							(20		)				(3		)	(23		)
Impact of net unrealized investment (gains) losses on policyholders’ dividends										(16		)	6			(10		)
Balance, December 31, 2016	$	312		$	(5	)	$	(6	)	$	(47	)	$	(97	)	$	157
Net investment gains (losses) on investments arising during the period	79												(22		)	57
Reclassification adjustment for (gains) losses included in net income	(85		)										23			(62		)
Reclassification adjustment for OTTI losses excluded from net income(1)	(20		)										5			(15		)
Impact of net unrealized investment (gains) losses on DAC, DSI, VOBA and reinsurance recoverables				3									(1		)	2
Impact of net unrealized investment (gains) losses on future policy benefits, policyholders’ account balances and reinsurance payables							9						(2		)	7
Impact of net unrealized investment (gains) losses on policyholders’ dividends										1			0			1
Balance, December 31, 2017	$	286		$	(2	)	$	3		$	(46	)	$	(94	)	$	147

__________


(1)	Represents “transfers in” related to the portion of OTTI losses recognized during the period that were not recognized in earnings for securities with no prior OTTI loss.

All Other Net Unrealized Investment Gains (Losses) in AOCI



	Net Unrealized Gains (Losses) on Investments(1)			DAC, DSI, VOBA and Reinsurance Recoverables			Future Policy Benefits, Policyholders’ Account Balances and Reinsurance Payables			Policyholders’ Dividends			Deferred Income Tax (Liability) Benefit			Accumulated Other Comprehensive Income (Loss) Related To Net Unrealized Investment Gains (Losses)
	(in millions)
Balance, December 31, 2014	$	36,764		$	(1,455	)	$	(1,282	)	$	(5,036	)	$	(9,944	)	$	19,047
Net investment gains (losses) on investments arising during the period	(6,311		)										2,268			(4,043		)
Reclassification adjustment for (gains) losses included in net income	(2,228		)										801			(1,427		)
Reclassification adjustment for OTTI losses excluded from net income(2)	15												(5		)	10
Impact of net unrealized investment (gains) losses on DAC, DSI and VOBA				695									(240		)	455
Impact of net unrealized investment (gains) losses on future policy benefits and policyholders’ account balances							200						(67		)	133
Impact of net unrealized investment (gains) losses on policyholders’ dividends										2,234			(782		)	1,452
Balance, December 31, 2015	28,240			(760		)	(1,082		)	(2,802		)	(7,969		)	15,627
Net investment gains (losses) on investments arising during the period	5,658												(1,910		)	3,748
Reclassification adjustment for (gains) losses included in net income	(1,494		)										504			(990		)
Reclassification adjustment for OTTI losses excluded from net income(2)	16												(5		)	11
Impact of net unrealized investment (gains) losses on DAC, DSI and VOBA				(296		)							93			(203		)
Impact of net unrealized investment (gains) losses on future policy benefits and policyholders’ account balances							(54		)				(9		)	(63		)
Impact of net unrealized investment (gains) losses on policyholders’ dividends										(178		)	62			(116		)
Balance, December 31, 2016	32,420			(1,056		)	(1,136		)	(2,980		)	(9,234		)	18,014
Net investment gains (losses) on investments arising during the period	5,216												(1,425		)	3,791
Reclassification adjustment for (gains) losses included in net income	(1,544		)										421			(1,123		)
Reclassification adjustment for OTTI losses excluded from net income(2)	20												(5		)	15
Impact of net unrealized investment (gains) losses on DAC, DSI, VOBA and reinsurance recoverables				(524		)							191			(333		)
Impact of net unrealized investment (gains) losses on future policy benefits, policyholders’ account balances and reinsurance payables							(107		)				25			(82		)
Impact of net unrealized investment (gains) losses on policyholders’ dividends										(651		)	190			(461		)
Balance, December 31, 2017	$	36,112		$	(1,580	)	$	(1,243	)	$	(3,631	)	$	(9,837	)	$	19,821

__________


(1)	Includes cash flow hedges. See Note 21 for information on cash flow hedges.


(2)	Represents “transfers out” related to the portion of OTTI losses recognized during the period that were not recognized in earnings for securities with no prior OTTI loss.