Prudential 2006 Annual Report Download - page 166

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PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
19. DERIVATIVE INSTRUMENTS (continued)
The following table provides the financial statement classification and impact of derivatives used in qualifying and non-qualifying
hedge relationships (excluding embedded derivatives and the offset of the hedged item in an effective hedge relationship):
Years Ended
December 31
2006 2005 2004
(in millions)
Qualifying hedges:
Net investment income
Interest rate ......................................................................... $ 13 $ (6) $ (4)
Currency(1) ......................................................................... (69) (61) (54)
Interest credited to policyholder account balances—(increase)/decrease
Interest rate ......................................................................... (1) 12 8
Interest expense—(increase)/decrease
Interest rate ......................................................................... 4 15 40
Realized investment gains (losses), net
Interest rate ......................................................................... 17 (17) (35)
Currency ........................................................................... (36) (1) (3)
Other income
Currency ........................................................................... 58 (198) 79
Other comprehensive income
Interest rate ......................................................................... (2) 6 (6)
Currency ........................................................................... (145) 116 (239)
Non-qualifying hedges:
Realized investment gains (losses), net
Interest rate ......................................................................... 79 63 92
Credit ............................................................................. 29 3 5
Currency ........................................................................... (6) 373 (334)
Equity ............................................................................. (46) (1) 15
Total Derivative Impact ..................................................................... $(105) $ 304 $(436)
(1) Interest rate component of currency derivatives
The ineffective portion of derivatives accounted for using hedge accounting in the years ended December 31, 2006, 2005 and
2004 was not material to the results of operations of the Company. In addition, there were no material amounts reclassified into
earnings relating to discontinued cash flow hedge accounting because the forecasted transaction did not occur by the anticipated
date or within the additional time period permitted by SFAS No. 133.
Presented below is a roll forward of current period cash flow hedges in “Accumulated other comprehensive income (loss)”
before taxes:
(in millions)
Balance, December 31, 2003 .............................................................................. $(111)
Net deferred losses on cash flow hedges from January 1 to December 31, 2004 ....................................... (146)
Amount reclassified into current period earnings ............................................................... 47
Balance, December 31, 2004 .............................................................................. (210)
Net deferred gains on cash flow hedges from January 1 to December 31, 2005 ....................................... 116
Amount reclassified into current period earnings ............................................................... (28)
Balance, December 31, 2005 .............................................................................. (122)
Net deferred losses on cash flow hedges from January 1 to December 31, 2006 ....................................... (60)
Amount reclassified into current period earnings ............................................................... (9)
Balance, December 31, 2006 .............................................................................. $(191)
It is anticipated that a pre-tax loss of approximately $28 million will be reclassified from “Accumulated other comprehensive
income (loss)” to earnings during the year ended December 31, 2007, offset by amounts pertaining to the hedged items. As of
December 31, 2006, the Company does not have any cash flow hedges of forecasted transactions other than those related to the
variability of the payment or receipt of interest or foreign currency amounts on existing financial instruments. The maximum length
PRUDENTIAL FINANCIAL, INC. 2006 ANNUAL REPORT
164