Prudential 2003 Annual Report Download - page 135

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
10. SHORT-TERM AND LONG-TERM DEBT (continued)
Long-term Debt
Long-term debt at December 31, is as follows:
Description
Maturity
Dates Rate 2003 2002
(in millions)
Prudential Holdings, LLC notes (the “IHC debt”)
Series A ...................................................... 2017(a) (c) $ 333 $ 333
Series B ...................................................... 2023(a) 7.245% 777 777
Series C ...................................................... 2023(a) 8.695% 640 640
Fixed rate notes
U.S. Dollar ................................................... 2006-2035(b) 3.75%-15.00% 3,169 1,131
Japanese Yen .................................................. 2010 (d) — 384
Floating rate notes (“FRNs”)
U.S. Dollar ................................................... 2004-2035 (e) — 785
Japanese Yen .................................................. 2005-2010 (f) — 17
Surplus notes ...................................................... 2007-2025 (g) 691 690
Total long-term debt ................................................ $5,610 $4,757
(a) Annual scheduled repayments of principal for the Series A and Series C notes begin in 2013. Annual scheduled repayments of principal for the
Series B notes begin in 2018.
(b) U.S. Dollar fixed rate notes at December 31, 2003 include $711 million related to the issuance of equity security units. See Note 11 for more
details regarding equity security units.
(c) The interest rate on the Series A notes is a floating rate equal to LIBOR plus 0.875% per year. The interest rate ranged from 1.94% to 2.29% in
2003 and 2.29% to 2.87% in 2002.
(d) The interest rate on the Japanese Yen denominated fixed rate note was 2.2% in 2002. This note was prepaid in 2003.
(e) The interest rates on the U.S. dollar denominated FRNs are generally based on rates such as LIBOR, Constant Maturity Treasury and the Federal
Funds Rate. Interest rates on the U.S. dollar denominated FRNs ranged from 1.72% to 4.58% in 2002. U.S. Dollar floating rate notes at
December 31, 2002 included $375 million related to a variable interest entity that was deconsolidated upon the adoption of the revised guidance
under FIN No. 46 on December 31, 2003.
(f) The interest rates on the Japanese Yen denominated FRNs are based on the Yen LIBOR plus 1.20%. The interest rates ranged from 1.27% to
1.33% in 2002. These FRNs were prepaid in 2003.
(g) The interest rate on the Surplus notes ranged from 7.65% to 8.30% in 2003 and 2002.
Several long-term debt agreements have restrictive covenants related to the total amount of debt, net tangible
assets and other matters. At December 31, 2003 and 2002, the Company was in compliance with all debt covenants.
Payment of interest and principal on the surplus notes issued after 1993, of which $691 million and $690 million
was outstanding at December 31, 2003 and 2002, respectively, may be made only with the prior approval of the
Commissioner of Banking and Insurance of the State of New Jersey (“the Commissioner”). The Commissioner could
prohibit the payment of the interest and principal on the surplus notes if certain statutory capital requirements are not
met. At December 31, 2003, the Company has met these statutory capital requirements.
In order to modify exposure to interest rate and currency exchange rate movements, the Company utilizes
derivative instruments, primarily interest rate swaps, in conjunction with some of its debt issues. These instruments
qualify for hedge accounting treatment. The impact of these instruments, which is not reflected in the rates presented in
the table above, were decreases in interest expense of $18 million and $15 million for the years ended December 31,
2003 and 2002, respectively. Floating rates are determined by contractual formulas and may be subject to certain
minimum or maximum rates. See Note 18 for additional information on the Company’s use of derivative instruments.
Interest expense for short-term and long-term debt was $403 million, $427 million and $647 million, for the years
ended December 31, 2003, 2002 and 2001, respectively. Securities business related interest expense of $82 million,
Prudential Financial 2003 Annual Report 133