Prudential 2007 Annual Report Download - page 81

In 2000, we announced a restructuring of Prudential Securities’ capital markets activities in which we exited the lead-managed equity
underwriting business for corporate issuers and the institutional fixed income business. Results of these operations are reflected as a
divested business for all periods presented. As of December 31, 2007 we had remaining assets amounting to $116 million related to
Prudential Securities’ institutional fixed income activities.
During 1996 and 1997, we sold substantially all of our residential first mortgage banking and related operations of Prudential Home
Mortgage Company, Inc. and its affiliates. Results of these operations are reflected as a divested business for all periods presented. We
remain liable with respect to certain claims concerning these operations prior to sale. We believe that we have adequately reserved in all
material respects for the remaining liabilities.
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, 2007, Prudential Financial had cash and short-term investments of approximately $4.704 billion, an increase of $3.600
billion from December 31, 2006. Prudential Financial’s principal sources and uses of cash and short-term investments for the year ended
December 31, 2007 were as follows:
Year ended
December 31,
2007
(in millions)
Sources:
Dividends and/or returns of capital from subsidiaries(1) ............................................................... $3,212
Proceeds from the issuance of retail medium-term notes, net of repayments(2) ............................................. 937
Proceeds from the issuance of long-term debt, net of repayments(3) ..................................................... 2,245
Proceeds from the issuance of floating rate convertible senior notes, net of repayments(3) .................................... 861
Proceeds from the issuance of short-term debt, net of repayments ....................................................... 1,003
Net receipts under intercompany loan agreements(4) ................................................................. 549
Proceeds from stock-based compensation and exercise of stock options ................................................... 399
Total sources ............................................................................................. 9,206
Uses:
Capital contributions to subsidiaries(5) ............................................................................ 415
Capital contribution to rabbi trust(6) .............................................................................. 95
Share repurchases(7) ........................................................................................... 3,000
Shareholder dividends ......................................................................................... 533
Purchase of funding agreements from Prudential Insurance, net of maturities(2) ............................................ 937
Other, net ....................................................................................................... 626
Total uses ............................................................................................... 5,606
Net increase in cash and short-term investments ......................................................................... $3,600
(1) Includes dividends and/or returns of capital of $1.214 billion from Prudential Insurance, $682 million from international insurance and investments
subsidiaries, $572 million from securities subsidiaries, $268 million from asset management subsidiaries, $192 million from American Skandia, $176
million from other insurance subsidiaries, $80 million from an investment subsidiary conducting spread-lending activities, and $28 million from other
businesses.
(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) Includes a loan repayment from an investment subsidiary of $3.500 billion that was originally funded with the proceeds from the convertible senior
notes issued in 2005 and 2006. Offsetting these repayments are loans of $2.361 billion to our asset management subsidiaries and a $250 million loan to
a domestic insurance subsidiary used to finance certain regulatory reserves required to be held in connection with the reinsurance of certain term life
policies.
(5) Includes capital contributions of $170 million to international insurance and investments subsidiaries, $100 million to American Skandia, $85 from
other insurance subsidiaries, $50 million to asset management subsidiaries, and $10 million from other businesses.
(6) See “—Uses of Capital—Rabbi Trust.”
(7) See “—Uses of Capital—Share Repurchases.”
Sources of Capital
Prudential Financial is a holding company whose principal asset is its investments in subsidiaries. Prudential Financial’s capitalization
and use of financial leverage are consistent with its ratings targets. We also monitor Prudential Financial’s ability to cover its fixed cash
obligations, such as interest expense, to ensure it is at a level consistent with its ratings targets. Our long-term senior debt rating targets for
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