Prudential 2001 Annual Report Download - page 93

Prudential Financial, Inc.
Non-Insurance Contractual Obligations
The following table presents our contractual cash flow commitments on short-term and long-term debt, equity
security units and operating leases. See Notes 11, 12 and 21 to the Consolidated Financial Statements for additional
information on our short-term and long-term debt, equity security units and operating leases. This table does not
reflect our obligations under our insurance, annuity and guaranteed products contracts.
Payment Due by Period
Total
Less
than
1 Year 1-3 Years 4-5 Years After 5 Years
(in millions)
Short-term and long-term debt ........................................ $10,709 $5,405 $1,123 $ 133 $4,048
Equity security units ................................................ 690 — — 690 —
Operating leases ................................................... 1,915 311 480 363 761
Total ............................................................. $13,314 $5,716 $1,603 $1,186 $4,809
During the normal course of our business, we utilize financial instruments with off-balance sheet credit risk such as
commitments, financial guarantees and letters of credit. Commitments include commitments to purchase and sell
mortgage loans, the underfunded portion of commitments to fund investments in private placement securities and
unused credit card and home equity lines.
In connection with our consumer banking business, loan commitments for credit cards, home equity lines of credit
and other lines of credit include agreements to lend up to specified limits to customers. It is anticipated that
commitment amounts will only be partially drawn down based on overall customer usage patterns and, therefore, do
not necessarily represent future cash requirements. We evaluate each credit decision on such commitments at least
annually and have the ability to cancel or suspend such lines at our option. The total available lines of credit card,
home equity and other commitments were $1.415 billion, of which $569 million remains available at December 31,
2001.
Other commitments primarily include commitments to purchase and sell mortgage loans and the unfunded portion
of commitments to fund investments in private placement securities. These mortgage loans and private placement
commitments were $2.029 billion, of which $1.083 billion remain available at December 31, 2001.
We also provide financial guarantees incidental to other transactions and letters of credit that guarantee the
performance of customers to third parties. These credit-related financial instruments have off-balance sheet credit
risk because only their origination fees, if any, and accruals for probable losses, if any, are recognized until the
obligation under the instrument is fulfilled or expires. These instruments can extend for several years and
expirations are not concentrated in any period. We seek to control credit risk associated with these instruments by
limiting credit, maintaining collateral where customary and appropriate and performing other monitoring
procedures. At December 31, 2001, financial guarantees and letters of credit issued were $341 million.
Off-Balance Sheet Arrangements
We utilize special purpose entities (“SPE’s”) for several business purposes. Our principal use of SPE’s has been in
connection with our existing commercial mortgage securitization business. The institutional fixed income business
of Prudential Securities, which we exited in 2000, also conducted securitization activities. In those securitizations,
mortgage loans or other receivables are sold to an SPE that issues debt and residual interests backed by the cash
flows of the SPE’s assets. In many of these transactions, we have no further continuing involvement in the assets or
activities of the SPE except for retained servicing. In others, we may retain subordinated debt or a non-controlling
portion of the equity of the SPE or may provide asset management services to the SPE. Our position as asset
manager is controlled by third party investors in the SPE, who have the ability to terminate our services. We have
also used SPE’s in connection with the sale of investments, primarily real estate. In these transactions, at the time of
sale, the investment is transferred to the SPE and is no longer included on our balance sheet. In other instances in
which we utilize SPE’s, such as structured financings and acquisitions, the SPE’s are fully consolidated in our
financial statements. We do not have any transactions, arrangements or other relationships with unconsolidated
entities or other persons that are reasonably likely to have a material effect on our liquidity or our access to or
requirements for capital resources. In addition, we do not have relationships with any unconsolidated entities that
are contractually limited to narrow activities that facilitate our transfer of or access to assets.
Prudential Financial 2001 Annual Report 91