ITEM 15, FORM 10-K - SCHEDULE II - CONDENSED FINANCIAL INFORMATION
Published on
Exhibit 99.5
Schedule II
Condensed Financial Information of Registrant
Condensed Statements of Financial Position
December 31, 2005 and 2004 (in millions)
| 2005 |
2004 |
|||||||
| ASSETS |
||||||||
| Total investments |
$ | 1,152 | $ | 639 | ||||
| Cash and cash equivalents |
657 | 338 | ||||||
| Due from subsidiaries |
73 | 606 | ||||||
| Loans receivable from subsidiaries |
4,739 | 2,207 | ||||||
| Investment in subsidiaries |
25,607 | 24,696 | ||||||
| Other assets |
292 | 69 | ||||||
| TOTAL ASSETS |
$ | 32,520 | $ | 28,555 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| LIABILITIES |
||||||||
| Due to subsidiaries |
$ | 656 | $ | 607 | ||||
| Loans payable to subsidiaries |
322 | 295 | ||||||
| Short-term debt |
3,443 | 446 | ||||||
| Long-term debt |
4,865 | 4,128 | ||||||
| Other liabilities |
471 | 735 | ||||||
| Total liabilities |
9,757 | 6,211 | ||||||
| STOCKHOLDERS’ EQUITY |
||||||||
| Preferred Stock ($.01 par value; 10,000,000 shares authorized; none issued) |
— | — | ||||||
| Common Stock ($.01 par value; 1,500,000,000 shares authorized; 604,899,046 and 604,894,558 shares issued at December 31, 2005 and 2004, respectively) |
6 | 6 | ||||||
| Class B Stock ($0.01 par value; 10,000,000 shares authorized; 2,000,000 shares issued and outstanding at December 31, 2005 and 2004, respectively) |
— | — | ||||||
| Additional paid-in capital |
20,501 | 20,348 | ||||||
| Common Stock held in treasury, at cost (107,405,004 and 80,262,323 shares at December 31, 2005 and 2004, respectively) |
(4,925 | ) | (3,052 | ) | ||||
| Accumulated other comprehensive income |
1,234 | 2,191 | ||||||
| Retained earnings |
5,947 | 2,851 | ||||||
| Total stockholders’ equity |
22,763 | 22,344 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ | 32,520 | $ | 28,555 | ||||
1
PRUDENTIAL FINANCIAL, INC.
Schedule II
Condensed Financial Information of Registrant
Condensed Statements of Operations For the Years Ended December 31, 2005, 2004 and 2003 (in millions)
| 2005 |
2004 |
2003 |
||||||||||
| REVENUES |
||||||||||||
| Net investment income |
$ | 71 | $ | 29 | $ | 16 | ||||||
| Realized investment gains (losses), net |
(5 | ) | (2 | ) | 5 | |||||||
| Affiliated interest revenue |
124 | 43 | 23 | |||||||||
| Other income |
2 | — | — | |||||||||
| Total revenues |
192 | 70 | 44 | |||||||||
| EXPENSES |
||||||||||||
| General and administrative expenses |
25 | 17 | 198 | |||||||||
| Interest expense |
301 | 152 | 102 | |||||||||
| Total expenses |
326 | 169 | 300 | |||||||||
| LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF SUBSIDIARIES |
(134 | ) | (99 | ) | (256 | ) | ||||||
| Income taxes: |
||||||||||||
| Current |
(74 | ) | (17 | ) | (65 | ) | ||||||
| Deferred |
4 | (9 | ) | (33 | ) | |||||||
| Total income tax benefit |
(70 | ) | (26 | ) | (98 | ) | ||||||
| LOSS FROM CONTINUING OPERATIONS BEFORE EQUITY IN EARNINGS OF SUBSIDIARIES |
(64 | ) | (73 | ) | (158 | ) | ||||||
| EQUITY IN EARNINGS OF SUBSIDIARIES |
3,604 | 2,330 | 1,422 | |||||||||
| INCOME FROM CONTINUING OPERATIONS |
3,540 | 2,257 | 1,264 | |||||||||
| LOSS FROM DISCONTINUED OPERATIONS, NET OF TAXES |
— | (1 | ) | — | ||||||||
| NET INCOME |
$ | 3,540 | $ | 2,256 | $ | 1,264 | ||||||
2
PRUDENTIAL FINANCIAL, INC.
Schedule II
Condensed Financial Information of Registrant
Condensed Statements of Cash Flows For the Years Ended December 31, 2005, 2004 and 2003 (in millions)
| 2005 |
2004 |
2003 |
||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||||||
| Net income |
$ | 3,540 | $ | 2,256 | $ | 1,264 | ||||||
| Adjustments to reconcile net income to cash provided by operating activities: |
||||||||||||
| Equity in earnings of subsidiaries |
(3,604 | ) | (2,330 | ) | (1,422 | ) | ||||||
| Realized investment losses (gains), net |
5 | 2 | (5 | ) | ||||||||
| Dividends received from subsidiaries |
2,158 | 1,048 | 762 | |||||||||
| Loss on divestiture |
— | — | 79 | |||||||||
| Change in: |
||||||||||||
| Due to/from subsidiaries, net |
565 | (186 | ) | (227 | ) | |||||||
| Other, net |
(28 | ) | (34 | ) | (16 | ) | ||||||
| Cash flows from operating activities |
2,636 | 756 | 435 | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||||||
| Proceeds from the sale/maturity of: |
||||||||||||
| Long-term investments |
22 | — | 410 | |||||||||
| Short-term investments |
414 | 2,211 | 2,092 | |||||||||
| Payments for the purchase of: |
||||||||||||
| Long-term investments |
(582 | ) | (470 | ) | (30 | ) | ||||||
| Short-term investments |
(364 | ) | (1,763 | ) | (2,498 | ) | ||||||
| Capital contributions to subsidiaries |
(779 | ) | (585 | ) | (649 | ) | ||||||
| Returns of capital contributions from subsidiaries |
235 | 196 | 580 | |||||||||
| Loans to subsidiaries, net of maturities |
(2,532 | ) | (1,020 | ) | (157 | ) | ||||||
| Acquisition of subsidiary |
— | — | (1,184 | ) | ||||||||
| Cash flows used in investing activities |
(3,586 | ) | (1,431 | ) | (1,436 | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||||||
| Cash payments to or in respect of eligible policyholders |
(283 | ) | (326 | ) | (142 | ) | ||||||
| Cash dividends paid on Common Stock |
(375 | ) | (322 | ) | (256 | ) | ||||||
| Cash dividends paid on Class B Stock |
(19 | ) | (19 | ) | (19 | ) | ||||||
| Common Stock acquired |
(2,096 | ) | (1,493 | ) | (1,009 | ) | ||||||
| Common Stock reissued for exercise of stock options |
169 | 107 | 53 | |||||||||
| Proceeds from stock based compensation |
105 | 45 | 54 | |||||||||
| Proceeds from the issuance of debt (maturities longer than 90 days) |
3,435 | 2,014 | 1,495 | |||||||||
| Repayments of debt (maturities longer than 90 days) |
(11 | ) | (50 | ) | — | |||||||
| Repayments of loan from subsidiaries |
(150 | ) | (600 | ) | (300 | ) | ||||||
| Proceeds from loans payable to subsidiaries |
174 | 75 | 70 | |||||||||
| Net change in financing arrangements (maturities of 90 days or less) |
320 | 34 | 412 | |||||||||
| Proceeds from the issuance of Common Stock |
— | 690 | — | |||||||||
| Cash flows from financing activities |
1,269 | 155 | 358 | |||||||||
| Effect of foreign exchange rate change on cash balances |
— | — | — | |||||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
319 | (520 | ) | (643 | ) | |||||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
338 | 858 | 1,501 | |||||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD |
$ | 657 | $ | 338 | $ | 858 | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
||||||||||||
| Cash paid during the period for interest |
$ | 246 | $ | 125 | $ | 9 | ||||||
| Cash paid (refunds received) during the period for taxes |
$ | (26 | ) | $ | (82 | ) | $ | 3 | ||||
| NON-CASH TRANSACTIONS DURING THE YEAR |
||||||||||||
| Return of capital from subsidiary in the form of fixed maturities, available for sale |
$ | — | $ | — | $ | 410 | ||||||
| Return of capital from subsidiary in the form of an income tax receivable |
$ | 144 | $ | — | $ | — | ||||||
3
Notes to Condensed Financial Information of Registrant
1. ORGANIZATION AND PRESENTATION
Prudential Financial, Inc. (“Prudential Financial”) was incorporated on December 28, 1999 as a wholly owned subsidiary of The Prudential Insurance Company of America. On December 18, 2001, The Prudential Insurance Company of America converted from a mutual life insurance company to a stock life insurance company and became an indirect, wholly owned subsidiary of Prudential Financial.
The condensed financial statements of Prudential Financial reflect its wholly owned subsidiaries using the equity method of accounting.
Certain amounts in prior years have been reclassified to conform to the current year presentation.
2. DEBT AND UNDISTRIBUTED DEMUTUALIZATION CONSIDERATION
Debt
A summary of Prudential Financial’s short- and long-term debt is as follows:
| Maturity Dates |
Rate |
December 31, 2005 |
December 31, 2004 | |||||||
| (in millions) | ||||||||||
| Short-term debt: |
||||||||||
| Commercial paper |
$ | 766 | $ | 446 | ||||||
| Floating rate convertible senior notes(1) |
2,000 | — | ||||||||
| Current portion of long-term debt |
677 | — | ||||||||
| Total short-term debt |
$ | 3,443 | $ | 446 | ||||||
| Long-term debt: |
||||||||||
| Fixed rate notes |
2006-2033 | 3.00%-6.20% | $ | 4,415 | $ | 4,088 | ||||
| Floating rate notes |
2007-2020 | (2) | 450 | 40 | ||||||
| Total long-term debt |
$ | 4,865 | $ | 4,128 | ||||||
| (1) | For information on the terms of these notes see Note 11 to the Consolidated Financial Statements. |
| (2) | The interest rates on these U.S. dollar denominated floating rate notes are based on LIBOR and the U.S. consumer price index. The interest rates ranged from 3.48% to 6.70% in 2005 and 4.04% and 5.09% in 2004. |
Short-term Debt
The weighted average interest rate on outstanding commercial paper was approximately 4.34% and 1.44% at December 31, 2005 and 2004, respectively.
The interest rate on the convertible debt is a floating rate equal to 3-month LIBOR minus 2.76%, to be reset quarterly. For the period from November 16, 2005, the date of issuance, to February 15, 2006, the first interest payment date, the interest rate is 1.57%.
Long-term Debt (including the Current Portion of Long-term Debt)
In order to modify exposure to interest rate movements, Prudential Financial 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, increased interest expense $3 million for the year ended December 31, 2005, and decreased interest expense $24 million for the year ended December 31, 2004.
Schedule of Long-term Debt Maturities
The following table summarizes payments due by period for long-term debt outstanding 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 |
$ | 4,865 | $ | — | $ | 909 | $ | 96 | $ | 3,860 | |||||
4
Convertible Debt Maturities
Prudential Financial’s short-term debt reflected in the table above 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 these convertible notes see Note 11 to the Consolidated Financial Statements.
Undistributed Demutualization Consideration
“Other liabilities” include liabilities of $203 million and $486 million at December 31, 2005, and 2004, respectively, for undistributed demutualization consideration payable to eligible policyholders whom we have been or were unable to locate as of those dates. In 2005 and 2004, Prudential Financial paid out $283 million and $326 million, respectively, in demutualization consideration to eligible policyholders whom we have located since the time of demutualization and to governmental authorities in respect of other eligible policyholders we continue to be unable to locate. We remain obligated to disburse $203 million of demutualization consideration to the states if we are unable to establish contact with eligible policyholders within time periods prescribed by state unclaimed property laws. These laws typically require remittance to the state after periods ranging from three to five years.
3. DIVIDENDS AND RETURNS OF CAPITAL
Dividends and/or returns of capital received by Prudential Financial during the year ended December 31, 2005 amounted to $2.393 billion, including $1.733 billion from Prudential Holdings, LLC, $231 million from Prudential Asset Management Holding Company, $175 million from American Skandia, and $75 million collectively from its international insurance and international investments holding companies. Dividends and/or returns of capital received by Prudential Financial during the year ended December 31, 2004 amounted to $1.244 billion, including $403 million from Prudential Holdings, LLC, $266 million collectively from its international insurance and international investments holding companies, $210 million from its bank holding company, $162 million from Prudential Asset Management Holding Company and $140 million from American Skandia. Dividends and/or returns of capital received by Prudential Financial during the year ended December 31, 2003 amounted to $1.342 billion, including $471 million collectively from Prudential Property and Casualty Insurance Company of New Jersey and Prudential Property and Casualty Insurance Company, $373 million received from Prudential Asset Management Holding Company and $233 million from American Skandia. In addition, Prudential Financial received a return of capital of $410 million in the form of available for sale fixed maturity securities that were received as consideration for the sale of the Property and Casualty Insurance businesses. These fixed maturities were subsequently sold to another subsidiary of Prudential Financial for cash proceeds of $410 million.
4. GUARANTEES
During 2002, Prudential Financial issued a subordinated guarantee covering a subsidiary’s domestic commercial paper program. As of December 31, 2005, there was $6.8 billion outstanding under this commercial paper program.
Prudential Financial is also subject to other financial guarantees and indemnity arrangements. Prudential Financial has provided indemnities and guarantees related to acquisitions, dispositions, investments or other transactions that are triggered by, among other things, breaches of representations, warranties or covenants provided by us. These obligations are typically subject to various time limitations, defined by the contract or by operation of law, such as statutes of limitation. In some cases, the maximum potential obligation is subject to contractual limitations, while in other cases such limitations are not specified or applicable. Since certain of these obligations are not subject to limitations, it is not possible to determine the maximum potential amount due under these guarantees. At December 31, 2005, Prudential Financial has accrued liabilities of $7 million associated with all other financial guarantees and indemnity arrangements, which does not include retained liabilities associated with sold businesses.
5