Prudential 2005 Annual Report Download - page 73

Contractual Obligations
The following table summarizes our major contractual obligations as of December 31, 2005:
Payments Due by Period
Total
Less than 1
Year
1–3
Years
3–5
Years
More than
5 Years
(in millions)
Long-term debt(1) ............................................................. $ 8,270 $ — $ 1,762 $ 102 $ 6,406
Operating leases(1) ............................................................ 927 192 300 190 245
Purchase obligations:
Commitments to purchase or fund investments(2) ................................ 6,333 6,333 — — —
Commercial mortgage loan commitments(3) .................................... 1,874 1,063 678 133 —
Other long-term liabilities:
Insurance liabilities(4) ...................................................... 53,054 5,613 7,909 6,401 33,131
Undistributed demutualization consideration(5) .................................. 203 105 98 — —
Total(6) ..................................................................... $70,661 $13,306 $10,747 $6,826 $39,782
(1) See Note 21 to the Consolidated Financial Statements for additional information.
(2) Certain of these commitments are reflected in payments due in less than one year, as the timing cannot be estimated. Commitments to purchase or fund
investments include $4,937 million that we anticipate will be funded from the assets of our separate accounts.
(3) Commercial mortgage loan commitments, which are legally binding commitments to extend credit to a counterparty, have been reflected in the
contractual obligations table above principally based on the expiration date of the commitment; however, it is possible these loan commitments couldbe
funded prior to their expiration. In certain circumstances the counterparty may also extend the date of the expiration in exchange for a fee.
(4) Insurance liabilities, reflected in the contractual obligations table above, include products for which we are currently making periodic payments,
including but not limited to, structured settlements, supplemental contracts, pension closeouts, group short- and long-term disability products and certain
annuity contracts.
Insurance liabilities, reflected in the contractual obligations table above, also include products for which we are not currently making periodic payments,
but for which we believe the amount and timing of future payments is essentially fixed and determinable. The contractholders generally cannot readily
withdraw funds on these contracts. These amounts include, but are not limited to, structured settlements, pension closeouts, certain annuity contracts,
guaranteed interest contracts and funding agreements with contractually scheduled maturities and group long-term disability products.
Liabilities for future policy benefits of approximately $84.4 billion and policyholder account balances of approximately $61.4 billion as of
December 31, 2005 have been excluded from the contractual obligations table. Amounts excluded from the table are generally comprised of policies or
contracts for which we are not currently making payments and the determination of these payments is not reasonably fixed and determinable. Such
excluded liabilities include, but are not limited to, future policy benefits relating to life insurance products, individual disability income claim reserves
that are 100% coinsured, and endowments and policyholder account balances relating to deferred/accumulation annuities and universal life products.
Significant uncertainties relating to these liabilities include mortality, morbidity, expenses, persistency, investment returns, inflation and the timing of
payments.
Amounts included in insurance liabilities within the contractual obligations table reflect estimated cash payments to be made to policyholders. Such
cash outflows reflect adjustments for the estimated timing of mortality, retirement, and other appropriate factors, but are undiscounted with respect to
interest. As a result, the sum of the cash outflows shown for all years in the table of $53.1 billion exceeds the corresponding liability amounts of $31.7
billion included in the consolidated financial statements as of December 31, 2005. The liability amount in the consolidated financial statements reflects
the discounting for interest as well as adjustments for the timing of other factors as described above.
(5) Prudential Financial remains obligated to disburse demutualization consideration for eligible policyholders that we have been unable to locate. To the
extent we continue to be unable to establish contact with these policyholders within a prescribed period of time specified by state escheat laws the funds
must be remitted to governmental authorities. The amounts reflected in the table above are reflective of state escheat laws as of December 31, 2005.
These liabilities are reflected within “Other liabilities” on our consolidated statements of financial position.
(6) Excludes short-term debt. Our short-term debt includes $2.0 billion of floating rate convertible senior notes with a maturity date of November 15, 2035.
These notes are redeemable by Prudential Financial on or after May 20, 2007, at par plus accrued interest. The holders of these notes may require
Prudential Financial to repurchase the convertible notes, at par plus accrued interest, on May 15, 2007 or on November 15, 2010, 2015, 2020, 2025, and
2030. For additional information on our short-term debt including these convertible notes, see Note 11 to the Consolidated Financial Statements.
We also enter into agreements to purchase goods and services in the normal course of business; however, these purchase obligations
are not material to our consolidated results of operations or financial position as of December 31, 2005.
Off-Balance Sheet Arrangements
Guarantees
In the course of our business, we provide certain guarantees and indemnities to third parties pursuant to which we may be contingently
required to make payments now or in the future.
A number of guarantees provided by us relate to real estate investments, in which the investor has borrowed funds, and we have
guaranteed their obligation to their lender. In some cases, the investor is an affiliate, and in other cases the unaffiliated investor purchases
Prudential Financial 2005 Annual Report 71