Prudential 2006 Annual Report Download - page 38

shares were transferred to our corporate operations during the first quarter of 2006. Subsequent to this transfer, changes in market value
of the transferred shares are reflected within Corporate and Other results.
2005 to 2004 Annual Comparison. Adjusted operating income decreased $10 million, from a loss of $245 million in 2004 to a loss
of $255 million in 2005. The segment’s results for 2005 include our share of earnings from Wachovia Securities, on a pre-tax basis and
excluding transition costs, of $217 million, compared to $172 million in 2004. The segment’s results also include expenses of $452 million
in 2005 related to obligations and costs we retained in connection with the contributed businesses primarily for litigation and regulatory
matters, compared to $227 million in 2004. These expenses included accruals for estimated settlement costs related to market timing issues.
Our results for 2005 reflect a decrease of $174 million in transition costs, from $194 million in 2004 to $20 million in 2005, reflecting the
completion of the business integration during the first half of 2005. In addition, results include income of zero and $4 million from our
equity sales and trading operations for 2005 and 2004, respectively.
Retirement
Operating Results
The following table sets forth the Retirement segment’s operating results for the periods indicated.
Year ended December 31,
2006 2005 2004
(in millions)
Operating results:
Revenues ....................................................................................... $4,378 $4,025 $3,225
Benefits and expenses ............................................................................. 3,869 3,527 2,891
Adjusted operating income ......................................................................... 509 498 334
Realized investment gains (losses), net, and related adjustments(1) ...................................... (137) 26 76
Related charges(2) ............................................................................ 5 (12) (11)
Investment gains (losses) on trading account assets supporting insurance liabilities, net(3) ................... 9 (219) (111)
Change in experience-rated contractholder liabilities due to asset value changes(4) ......................... 39 142 57
Income from continuing operations before income taxes, equity in earnings of operating joint ventures, extraordinary
gain on acquisition and cumulative effect of accounting change .......................................... $ 425 $ 435 $ 345
(1) Revenues exclude Realized investment gains (losses), net, and related adjustments. 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.
(3) Revenues exclude net investment gains and losses on trading account assets supporting insurance liabilities. 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. 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. In addition, as a result of a change in the reinsurance arrangement governing the purchase of the guaranteed cost business from
CIGNA, the results of this business that were previously presented on a net basis in “Asset management fees and other income” are,
beginning on April 1, 2006, presented on a gross basis in our results of operations. See Note 3 to the Consolidated Financial Statements for
further discussion of this acquisition and its purchase price allocation, as well as discussion of the change in the reinsurance arrangement
associated with the guaranteed cost business.
Adjusted Operating Income
2006 to 2005 Annual Comparison. Adjusted operating income for the Retirement segment increased $11 million, from $498 million
in 2005 to $509 million in 2006. Results for 2006 include $25 million from mortgage prepayment income, a $13 million benefit from the
disposition of real estate within an investment joint venture, $12 million from reserve releases mainly reflecting updates of client census
data on a group annuity block of business and $6 million of transition expenses related to the integration of the retirement business acquired
from CIGNA, which was completed in the first quarter of 2006. Results for 2005 include $49 million from mortgage prepayment income,
$27 million from reserve releases mainly reflecting updates of client census data on a group annuity block of business, $36 million of
transition expenses and $7 million from the collection of investment income on a previously defaulted bond.
Excluding the items discussed above, adjusted operating income for the Retirement segment increased $14 million. This increase
primarily reflects an increase in adjusted operating income from our institutional investment products business reflecting a greater
contribution from investment results due principally to a larger base of invested assets. Partially offsetting this increase was a decrease in
adjusted operating income from our full service business. The decrease in our full service business reflects higher general and
PRUDENTIAL FINANCIAL, INC. 2006 ANNUAL REPORT
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