Prudential 2002 Annual Report Download - page 121
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Please find page 121 of the 2002 Prudential annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
12. SHORT-TERM AND LONG-TERM DEBT (continued)
Interest expense for short-term and long-term debt was $427 million, $647 million and $1,056 million, for
the years ended December 31, 2002, 2001 and 2000, respectively. Securities business related interest expense of
$144 million, $287 million and $456 million for the years ended December 31, 2002, 2001 and 2000,
respectively, is included in “Net investment income.”
Prudential Holdings, LLC Notes
On the date of demutualization, Prudential Holdings, LLC (“PHLLC”), a wholly owned subsidiary of
Prudential Financial, issued $1.75 billion in senior secured notes (the “IHC debt”). PHLLC owns the capital stock
of Prudential Insurance and does not have any operating businesses of its own. The IHC debt represents senior
secured obligations of PHLLC with limited recourse; neither Prudential Financial, Prudential Insurance nor any
other affiliate of PHLLC is an obligor or guarantor on the IHC debt. The IHC debt is collateralized by 13.8% of
the outstanding common stock of Prudential Insurance and other items specified in the indenture, primarily the
“debt coverage service account” discussed below.
PHLLC’s ability to meet its obligations under the IHC debt is dependent principally upon sufficient available
funds being generated by the Closed Block Business and the ability of Prudential Insurance, the sole direct
subsidiary of PHLLC, to dividend such funds to PHLLC. The payment of scheduled principal and interest on the
Series A notes and the Series B notes is insured by a financial guarantee insurance policy. The payment of
principal and interest on the Series C notes is not insured. The IHC debt is redeemable prior to its stated maturity
at the option of PHLLC and, in the event of certain circumstances, the IHC debt bond insurer can require PHLLC
to redeem the IHC debt.
Net proceeds from the IHC debt amounted to $1,727 million. The majority of the net proceeds, or $1,218
million, was distributed to Prudential Financial through a dividend on the date of demutualization for use in the
Financial Services Businesses. Net proceeds of $437 million were deposited to a restricted account within
PHLLC. This restricted account, referred to as the “debt service coverage account,” constitutes additional
collateral for the IHC debt and is maintained in the Financial Services Businesses. The remainder of the net
proceeds, or $72 million, was used to purchase a guaranteed investment contract to fund a portion of the financial
guarantee insurance premium related to the IHC debt.
Summarized consolidated financial data for Prudential Holdings, LLC is presented below. Amounts for 2001
include results of operations and cash flows of Prudential Insurance prior to the date of demutualization.
2002 2001
(in millions)
Consolidated Statements of Financial Position data at December 31:
Total assets ....................................................................... $223,703 $220,585
Total liabilities .................................................................... 208,394 205,994
Totalequity....................................................................... 15,309 14,591
Total liabilities and equity ........................................................... 223,703 220,585
Consolidated Statements of Operations data for the years ended December 31:
Totalrevenues .................................................................... $ 15,893 $ 27,173
Total benefits and expenses .......................................................... 16,037 27,380
Loss from continuing operations ...................................................... (101) (154)
Netloss .......................................................................... (93) (151)
Consolidated Statements of Cash Flows data for the years ended December 31:
Cash flows from operating activities ................................................... $ 8,337 $ 5,246
Cash flows from (used in) investing activities ............................................ (7,503) 7,395
Cash flows used in financing activities ................................................. (1,473) (13,730)
Net decrease in cash and cash equivalents ............................................... (639) (1,089)
Growing and Protecting Your Wealth120