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3 <br />LIBERTY MUTUAL HOLDING COMPANY INC. <br />Notes to Consolidated Financial Statements <br />(dollars in mil0ons) <br />Unaudited <br />On April 12, 2004, LMIC retired approximately $129 of its $250 of 8.20% Surplus Notes due 2007 and realized a loss of approximately $19. As <br />discussed in Note 3, the Company entered into two promissory note agreements with Pmdential in conjunction with the acquisition of all the <br />outstanding stock of PruPac. On April 16, 2004, LMGI repaid approximately $130 of these rotes. <br />On March 23, 2004, the Company issued $500 of 5.75 % unsecured senior notes due 2014 and $250 of 7.00% unsecured senior notes due 2034. <br />Approximately $277 of the net proceeds were used to retire existing obligatons. <br />(6) BENEFIT PLANS <br />The net benefit costs for the three months and year s ended December 31, 2005 and 2004 included the following components: <br /> SIRP* Pos[retirement <br /> Pension Benefits Benefits Benefits <br />Three months ended December 31, <br /> 2005 2004 2005 2004 2005 2004 <br />Components of net periodic benefit costs: <br />Service cost $32 $31 $2 $1 $3 $5 <br />Interest cast 43 40 3 3 7 7 <br />Expected return on plan assets (61) (52) - - - - <br />Amottization of unrecognized: <br />Net (gain)/loss 5 - 2 2 (1) (1) <br />Prior service cost 1 1 - - (1) (1) <br />Net transition (assets)/obligations (1) - - - 3 2 <br />Net periodic benefit costs $29 $20 $7 $6 $11 $12 <br /> SIRP* Postretirement <br /> Pension Bene0te Benefits Benefits <br />Years ended December 31, <br /> 2005 2004 2005 2004 2005 2004 <br />Components of net periodic brnefit costs: <br />Senice cos[ $127 $125 $9 $7 $14 $18 <br />Interest cost 173 161 13 12 27 30 <br />Expected return on plan assets (201) (208) - - (1) (7) <br />Curtailment (gain)/loss - - - 15 - (1) <br />Amorcization of unrecognized: <br />Net (gain)/loss t8 - 6 6 (1) (1) <br />Prior service cost 3 5 2 2 (3) (3) <br />Net transition (assets)/obligations (5) (5) - - 10 9 <br />Net periodic benefit costs $115 $78 $30 $42 $46 $51 <br />* The Company sponsors supplemental retirement plans to provide pension benefits above the levels provided by the pension plans without regard to <br />the statutory earnings limitations of qualified defined benefit pension plans. The supplemental plans are unfunded. <br />(7) COMMITMENTS AND CONTINGENT LLIBILITIES <br />Various lawsuits against the Company have arisen in the normal course of business. Contingent liabilities arising from Gtigarioq income taxes and <br />other matters are not considered material in relation to the financial position of the Company. <br />The Company has been in various insurance coverage disputes with Armstrong World Industries ('Armsttong'~ for over twenty years relating to <br />asbestos liabilities and insurance covering the period 7973 to 1981. The Company prevailed in a favorable arbitration ruling before an appe0ate panel <br />regarding Armstrong's insurance coverage in)uly 2003. Armstrong filed a Chapter 11 Bankmptcy petition in the United States Bankruptcy Court for <br />[he District of Delaware in December 2000 and is still operating under the protection of Chapter 71. A declaratory judgment action, fled by <br />