Prudential 2006 Annual Report Download - page 74

Liquidity and Capital Resources
Prudential Financial
The principal sources of funds available to Prudential Financial, the parent holding company and registrant, to meet its
obligations, including the payment of shareholder dividends, debt service, operating expenses, capital contributions and
obligations to subsidiaries are dividends, returns of capital, interest income from its subsidiaries, and cash and short-term
investments. These sources of funds are complemented by Prudential Financial’s access to the capital markets and bank
facilities. We believe that cash flows from these sources are sufficient to satisfy the current liquidity requirements of Prudential
Financial, including reasonably foreseeable contingencies. As of December 31, 2006, Prudential Financial had cash and short-
term investments of approximately $1.104 billion, an increase of $357 million, or 48%, from December 31, 2005. Prudential
Financial’s principal sources and uses of cash and short-term investments for the year ended December 31, 2006 were as
follows:
Year ended
December 31,
2006
(in millions)
Sources:
Dividends and/or returns of capital from subsidiaries(1) ............................................................... $3,225
Proceeds from the issuance of retail medium-term notes, net of repayments(2) ............................................. 779
Proceeds from the issuance of long-term debt, net of repayments(3) ..................................................... 919
Proceeds from the issuance of floating rate convertible senior notes(3) ................................................... 1,984
Proceeds from stock-based compensation and exercise of stock options ................................................... 347
Proceeds from notes issued to affiliates(4) .......................................................................... 945
Receipt of tax settlement(5) ..................................................................................... 531
Total sources ............................................................................................. 8,730
Uses:
Capital contributions to subsidiaries(6) ............................................................................ 845
Share repurchases(7) ........................................................................................... 2,512
Repayment of short-term debt, net of issuances ...................................................................... 484
Demutualization consideration(8) ................................................................................ 108
Shareholder dividends ......................................................................................... 440
Purchase of funding agreements from Prudential Insurance, net of maturities(2) ............................................ 779
Net payments under intercompany loan agreements(9) ................................................................ 2,673
Distribution to subsidiaries of tax settlement(5) ...................................................................... 531
Other, net ....................................................................................................... 1
Total uses ............................................................................................... 8,373
Net increase in cash and short-term investments ......................................................................... $ 357
(1) Includes dividends and/or returns of capital of $2.097 billion from Prudential Insurance, $383 million from international insurance and investments
subsidiaries, $308 million from asset management subsidiaries, $245 million from American Skandia, $143 million from securities subsidiaries, $27
million from other businesses, and $22 million from real estate subsidiaries.
(2) Proceeds from the issuance of retail medium-term notes are used primarily to purchase funding agreements from Prudential Insurance. See
“—Financing Activities” for a discussion of our retail note program.
(3) See “—Financing Activities.”
(4) Proceeds from the issuance of medium-term notes to two of our international insurance subsidiaries and from issuance of notes to a subsidiary as part of
a private structured finance transaction. See “—Financing Activities.”
(5) See “—Tax Settlement.”
(6) Includes capital contributions of $453 million to securities subsidiaries, $281 million to international insurance and investments subsidiaries, and $111
million to domestic insurance subsidiaries.
(7) See “—Uses of Capital—Share Repurchases.”
(8) See “—Uses of Capital—Demutualization Consideration.”
(9) Includes a $1.954 billion loan to an investment subsidiary that was funded with $1.5 billion proceeds from the issuance of senior convertible notes and
$454 million proceeds from a private structured finance transaction.
PRUDENTIAL FINANCIAL, INC. 2006 ANNUAL REPORT
72