Primerica 2010 Annual Report - Direct Selling News

pursuant to which we issued to a wholly ownedsubsidiary of Citi (i) 74,999,900 shares of ourcommon stock (of which 24,564,000 shares ofcommon stock were subsequently sold by Citi inour initial public offering completed in April2010; 16,412,440 shares of common stock weresubsequently sold by Citi in mid-April 2010 toprivate equity funds managed by WarburgPincus LLC (“Warburg Pincus”) for a purchaseprice of $230.0 million (the “private sale”); and5,021,412 shares of common stock wereimmediately contributed back to us for equityawards granted to our employees and salesforce leaders in connection with our initialpublic offering), (ii) warrants to purchase fromus an aggregate of 4,103,110 shares of ourcommon stock (which were transferred by Citito Warburg Pincus pursuant to the privatesale), and (iii) a $300.0 million note payabledue on March 31, 2015 bearing interest at anannual rate of 5.5% (the “Citi note”). Prior toApril 1, 2010, we had no material assets orliabilities. Upon completion of the Transactions,our primary asset is the capital stock of ouroperating subsidiaries and our primary liabilityis the Citi note.The reinsurance transactions. In March2010, we entered into coinsurance agreements(the “Citi reinsurance agreements”) with twoaffiliates of Citi and Prime Re, then a whollyowned subsidiary of Primerica Life, (collectivelythe “Citi reinsurers”). We refer to the executionof these agreements as the “Citi reinsurancetransactions.” Under these agreements, weceded between 80% and 90% of the risks andrewards of our term life insurance policies thatwere in force at year-end 2009. We alsotransferred to the Citi reinsurers the accountbalances in respect of the coinsured policiesand approximately $4.0 billion of assets tosupport the statutory liabilities assumed by theCiti reinsurers, and we distributed to Citi all ofthe issued and outstanding common stock ofPrime Re. As a result, the Citi reinsurancetransactions reduced the amount of our capitaland substantially reduced our insuranceexposure. We retained our operating platformand infrastructure and continue to administerall policies subject to these coinsuranceagreements.The concurrent transactions. During thefirst quarter of 2010, we declared distributionsto Citi of approximately $703 million. We alsorecognized the income attributable to thepolicies underlying the Citi reinsurancetransactions as well as the income earned onthe invested assets backing the reinsurancebalances and the extraordinary dividendsdeclared in the first quarter. These items werereflected in the statement of income for thethree months ended March 31, 2010.Furthermore, because the Citi reinsurancetransactions were given retroactive effect backto January 1, 2010, we recognized a return ofcapital on our balance sheet for the incomeearned on the reinsured policies during thethree months ended March 31, 2010.In April 2010, we completed the followingadditional concurrent transactions:• we completed an initial public offering ofour common stock by Citi (the “Offering”)pursuant to the Securities Act of 1933 andour stock began trading under the tickersymbol “PRI” on the New York StockExchange;• we issued equity awards for 5,021,412shares of our common stock to certain ofour employees, including our officers, andcertain of our sales force leaders, including221,412 shares which were issued uponconversion of existing equity awards in Citishares that had not yet fully vested; and• Citi accelerated vesting of certain existingCiti equity awards triggered by theOffering and the private sale.Additionally, we made elections with aneffective date of April 1, 2010 underSection 338(h)(10) of the Internal RevenueCode (the “Section 338(h)(10) elections”),which resulted in reductions to stockholders’equity of $172.5 million and correspondingadjustments to deferred tax balances.During the first quarter of 2010, our federalincome tax return was included as part of Citi’sconsolidated federal income tax return. OnMarch 30, 2010, in anticipation of our corporatereorganization, we entered into a taxseparation agreement with Citi. In accordancewith the tax separation agreement, Citi will bePrimerica 2010 Annual Report 69