Prudential 2005 Annual Report Download - page 33

2004 to 2003 Annual Comparison. The Financial Advisory segment reported a loss, on an adjusted operating income basis, of $245
million in 2004, as discussed above.
In 2003, the segment reported a loss, on an adjusted operating income basis, of $111 million. This loss includes a loss of $53 million
from our securities brokerage operations prior to combination of these operations with Wachovia on July 1, 2003. The segment’s loss for
2003 includes our share of earnings from Wachovia Securities, on a pre-tax basis and excluding transition costs, of $88 million. Offsetting
these results were expenses of $107 million relating primarily to obligations for litigation and regulatory matters we retained in connection
with the contributed businesses. Full year results from our securities brokerage operations for 2003 include $100 million of transition costs,
of which $32 million represents our share of costs incurred by the venture, as well as a pre-tax gain of $22 million recorded on the
completion of the combination of the businesses. In addition, results for 2003 include income of $2 million from our equity sales and
trading operations.
Retirement
Operating Results
The following table sets forth the Retirement segment’s operating results for the periods indicated.
Year ended December 31,
2005 2004 2003
(in millions)
Operating results:
Revenues ........................................................................................ $4,025 $3,225 $2,281
Benefits and expenses .............................................................................. 3,527 2,891 2,089
Adjusted operating income .......................................................................... 498 334 192
Realized investment gains (losses), net, and related adjustments(1) ....................................... 26 76 (1)
Related charges(2) ............................................................................. (12) (11) 5
Investment gains (losses) on trading account assets supporting insurance liabilities, net(3) .................... (219) (111) —
Change in experience-rated contractholder liabilities due to asset value changes(4) .......................... 142 57 —
Income from continuing operations before income taxes, extraordinary gain on acquisition and cumulative effect of
accounting change ............................................................................... $ 435 $ 345 $ 196
(1) Revenues exclude Realized investment gains (losses), net, and related adjustments. For a discussion of these items see “—Realized Investment Gains
and General Account Investments—Realized Investment Gains.”
(2) Benefits and expenses exclude related charges which represent the unfavorable (favorable) impact of Realized investment gains (losses), net, on change
in reserves and the amortization of deferred policy acquisition costs. For a discussion of these items see “—Realized Investment Gains and General
Account Investments—Realized Investment Gains.”
(3) Revenues exclude net investment gains and losses on trading account assets supporting insurance liabilities. For a discussion of these items see
“—Trading account assets supporting insurance liabilities.”
(4) Benefits and expenses exclude changes in contractholder liabilities due to asset value changes in the pool of investments supporting these experience-
rated contracts. For a discussion of these items see “—Trading account assets supporting insurance liabilities.”
On April 1, 2004, we acquired the retirement business of CIGNA Corporation for cash consideration of $2.1 billion. Beginning
April 1, 2004, the results of the former CIGNA retirement business have been included in our consolidated results. The majority of these
results are reflected within our Retirement segment, as discussed below, and the remaining portion is reflected in our Asset Management
segment. See Note 3 to the Consolidated Financial Statements for further discussion of this acquisition and its purchase price allocation.
Adjusted Operating Income
2005 to 2004 Annual Comparison. Adjusted operating income increased $164 million, from $334 million in 2004 to $498 million in
2005. Results for the segment during 2005 included adjusted operating income of $195 million from the retirement business we acquired
from CIGNA, compared to $128 million in 2004, which included only the initial nine months of results for these operations. Adjusted
operating income for the acquired retirement business for 2005 consisted of revenues of $1.295 billion and total benefits and expenses of
$1.100 billion. Revenues from the acquired business consisted primarily of $873 million in net investment income, mainly related to
trading assets supporting insurance liabilities, and $289 million in asset management fees and other income. Benefits and expenses from
the acquired business consisted primarily of $677 million of interest credited to policyholders’ account balances and $434 million of
general and administrative expense. Transition costs related to the acquisition were $36 million in 2005 and $43 million in 2004.
Adjusted operating income from the segment’s original businesses, excluding the retirement business we acquired from CIGNA,
increased $97 million, from $206 million in 2004 to $303 million in 2005. Results for 2005 benefited by $49 million from mortgage
prepayment income, which represents a $34 million benefit to the current year as compared to the prior year. Results for 2005 also
benefited by $27 million from reserve releases, which include updates of client census data on a group annuity block of business. In
addition, the 2005 period benefited from improved investment results, primarily reflecting lower crediting rates on full service general
account liabilities, and from the collection of investment income on a previously defaulted bond in the first quarter of 2005 amounting to
$7 million.
2004 to 2003 Annual Comparison. Adjusted operating income increased $142 million, from $192 million in 2003 to $334 million in
2004. Results for the segment for 2004 include $128 million of adjusted operating income from the inclusion of CIGNA’s retirement
Prudential Financial 2005 Annual Report 31