Prudential 2015 Annual Report Download - page 86

Liquidity
The principles of our liquidity management framework are described in an enterprise-wide Liquidity Policy that is reviewed and
approved by the Board. Liquidity management and stress testing are performed on a legal entity basis as the ability to transfer funds
between subsidiaries is limited due in part to regulatory restrictions. Liquidity needs are determined through daily and quarterly cash flow
forecasting at the holding company and within our operating subsidiaries. A minimum cash balance of at least $1.3 billion is targeted to
ensure that adequate liquidity is available at Prudential Financial to cover fixed expenses in the event that we experience reduced cash
flows from our operating subsidiaries at a time when access to capital markets is also not available. This targeted minimum balance is
reviewed and approved annually by the Board.
We seek to mitigate the risk of having limited or no access to financing due to stressed market conditions by generally pre-funding
capital debt in advance of maturity. We mitigate the refinancing risk associated with our debt that is used to fund operating needs by
matching the term of debt with the assets financed. To ensure adequate liquidity in stress scenarios, stress testing is performed for our
major operating subsidiaries. We seek to further mitigate liquidity risk by maintaining our access to alternative sources of liquidity, as
discussed below.
Liquidity of Prudential Financial
The principal sources of funds available to Prudential Financial, the parent holding company, are dividends and returns of capital from
subsidiaries, repayments of operating loans from subsidiaries and cash and short-term investments. These sources of funds may be
supplemented by Prudential Financial’s access to the capital markets as well as the “—Alternative Sources of Liquidity” described below.
The primary uses of funds at Prudential Financial include servicing debt, paying operating expenses, making capital contributions and
loans to subsidiaries, paying declared shareholder dividends and repurchasing outstanding shares of Common Stock executed under
authority from the Board.
As of December 31, 2015, Prudential Financial had cash and short-term investments of $11,104 million, an increase of $40 million
from December 31, 2014. We maintain an intercompany liquidity account that is designed to optimize the use of cash by facilitating the
lending and borrowing of funds between Prudential Financial and its subsidiaries on a daily basis. Excluding net borrowings from this
intercompany liquidity account, Prudential Financial had cash and short-term investments of $5,062 million as of December 31, 2015, an
increase of $746 million from December 31, 2014.
The following table sets forth Prudential Financial’s principal sources and uses of cash and short-term investments, excluding net
borrowings from our intercompany liquidity account, for the periods indicated.
Year Ended December 31,
2015 2014
(in millions)
Sources:
Dividends and/or returns of capital from subsidiaries(1) .................................................... $4,632 $2,476
Proceeds from the issuance of long-term senior debt ....................................................... 0 1,794
Net receipts under intercompany loan agreements(2) ....................................................... 3,271 1,242
Proceeds from the issuance of junior subordinated debt (hybrid securities) ...................................... 1,000 0
Net income tax receipts .............................................................................. 0 1,231
Proceeds from stock-based compensation and exercise of stock options ........................................ 379 431
Interest income from subsidiaries on intercompany agreements, net of interest paid .............................. 257 375
Proceeds from the issuance of retail medium-term notes .................................................... 180 141
Other, net ......................................................................................... 190 0
Total sources .................................................................................. 9,909 7,690
Uses:
Capital contributions to subsidiaries(3) ................................................................. 2,545 3,065
Maturities of medium-term notes, excluding retail medium-term notes ......................................... 2,148 1,473
Common Stock dividends(4) ......................................................................... 1,117 1,008
Share repurchases(5) ................................................................................ 1,013 1,000
Interest paid on external debt ......................................................................... 970 986
Class B Stock repurchase settlement .................................................................... 651 0
Expenditures for new home office construction ........................................................... 579 0
Repayments of retail medium-term notes ................................................................ 77 58
Class B Stock dividends ............................................................................. 0 19
Net income tax payments ............................................................................ 46 0
Repayments of short-term debt ........................................................................ 17 94
Other, net ......................................................................................... 0 25
Total uses .................................................................................... 9,163 7,728
Net increase (decrease) in cash and short-term investments ...................................................... $ 746 $ (38)
(1) 2015 includes dividends and/or returns of capital of $1,950 million from Prudential Insurance, $1,818 million from international insurance subsidiaries,
$552 million from Prudential Annuities Holding Company, of which $450 million was from PALAC, $266 million from Asset Management
subsidiaries, and $46 million from other subsidiaries. 2014 includes dividends and/or returns of capital of $966 million from international insurance
84 Prudential Financial, Inc. 2015 Annual Report