Prudential 2011 Annual Report Download - page 62

Corporate and Other
Corporate and Other includes corporate operations, after allocations to our business segments.
Year ended December 31,
2011 2010 2009
(in millions)
Operating results:
Net investment income, net of interest expense, excluding capital debt interest expense ......................... $ (24) $ (63) $ (54)
Capital debt interest expense ........................................................................ (621) (554) (495)
Pension income and employee benefits ............................................................... 173 204 211
Other corporate activities(1) ........................................................................ (655) (510) (441)
Adjusted operating income ......................................................................... (1,127) (923) (779)
Realized investment gains (losses), net, and related adjustments(2) ..................................... (1,496) 98 108
Related charges(3) ........................................................................... 25 2 6
Divested businesses(4) ........................................................................ 54 (25) 2,086
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests(5) .......... (13) (18) (2,311)
Income (loss) from continuing operations before income taxes and equity in earnings of operating joint ventures ..... $(2,557) $(866) $ (890)
(1) Includes consolidating adjustments.
(2) Revenues exclude Realized investment gains (losses), net, and related adjustments. See “—Realized Investment Gains and Losses and General Account
Investments—Realized Investment Gains and Losses.”
(3) Benefits and expenses exclude related charges which represent consolidating adjustments.
(4) See “—Divested Businesses.”
(5) Equity in earnings of operating joint ventures are included in adjusted operating income but excluded from income from continuing operations before
income taxes and equity in earnings of operating joint ventures as they are reflected on a U.S. GAAP basis on an after-tax basis as a separate line in our
Consolidated Statements of Operations. Earnings attributable to noncontrolling interests are excluded from adjusted operating income but included in
income from continuing operations before income taxes and equity in earnings of operating joint ventures as they are reflected on a U.S. GAAP basis as
a separate line in our Consolidated Statements of Operations. Earnings attributable to noncontrolling interests represent the portion of earnings from
consolidated entities that relates to the equity interests of minority investors.
2011 to 2010 Annual Comparison. The loss from Corporate and Other operations, on an adjusted operating income basis, increased
$204 million, from $923 million in 2010 to $1,127 million in 2011. Corporate and Other operations recorded a $93 million increase in
expenses for estimated payments arising from use of new Social Security Master Death File matching criteria to identify deceased policy
and contract holders. See Note 23 to the Notes to Consolidated Financial Statements for further details regarding this matter. Corporate and
Other operations also recorded a $20 million charge related to a voluntary contribution to an insurance industry insolvency fund, related to
Executive Life Insurance Company of New York. Greater net charges from other corporate activities, primarily reflecting increased
retained corporate expenses, including corporate advertising, contributed to the increased loss. The increase in net charges from other
corporate activities was partially offset by more favorable results from corporate foreign currency hedging activities and reduced charges
compared to the prior period for certain retained obligations relating to pre-demutualization policyholders to whom we had previously
agreed to provide insurance for reduced or no premium in accordance with contractual settlements related to prior individual life insurance
sales practices remediation. Capital debt interest expense increased $67 million due to a greater level of capital debt, which includes the
issuance in November 2010 of $1 billion of debt for the acquisition of the Star and Edison Businesses. Investment income, net of interest
expense, excluding capital debt interest expense, increased $39 million due to higher income in our corporate investment portfolio
including higher income on equity method investments. Higher levels of short-term liquidity have been maintained throughout 2010 and
into 2011 to provide additional flexibility to address our cash needs in view of changing financial market conditions. On February 1, 2011,
we used a portion of cash and short-term investments in Corporate and Other operations to partially fund the purchase price related to our
recent acquisition of the Star and Edison Businesses. Also, in June 2011, Prudential Financial’s Board of Directors authorized the Company
to repurchase, at management’s discretion, up to $1.5 billion of its outstanding Common Stock through June 2012. During 2011, the
Company made share repurchases of $999.5 million. See “—Liquidity and Capital Resources” for additional details.
Results from Corporate and Other operations pension income and employee benefits decreased $31 million primarily due to a decrease
in income from our qualified pension plan. Income from our qualified pension plan decreased $31 million, from $321 million in 2010 to
$290 million in 2011, due to a decrease in the expected rate of return on plan assets from 7.50% in 2010 to 7.00% in 2011, partially offset
by the effect on expected return due to the growth in plan assets.
For purposes of calculating pension income from our own qualified pension plan for the year ended December 31, 2012, we will
decrease the discount rate to 4.85% from 5.60% in 2011. The expected rate of return on plan assets will decrease to 6.75% in 2012 from
7.00% in 2011, and the assumed rate of increase in compensation will remain unchanged at 4.5%. We determined our expected rate of
return on plan assets based upon a building block approach that considers inflation, real return, term premium, credit spreads, equity risk
premium and capital appreciation as well as expenses, expected asset manager performance and the effect of rebalancing for the equity,
debt and real estate asset mix applied on a weighted average basis to our pension asset portfolio. Giving effect to the foregoing assumptions
and other factors, we expect, on a consolidated basis, income from our own qualified pension plan will continue to contribute to adjusted
operating income in 2012, but at a level of about $55 million to $65 million lower than in 2011. Other postretirement benefit expenses will
increase in a range of $15 million to $25 million. The increase is driven primarily by demographic updates, a decrease in the discount rate
to 4.60% from 5.35% and the effect of a decrease in plan assets. In 2012, pension and other postretirement benefit service costs related to
active employees will continue to be allocated to our business segments.
60 Prudential Financial, Inc. 2011 Annual Report