Prudential 2007 Annual Report Download - page 38

On June 6, 2007, we announced our decision to exit the equity sales, trading and research operations of the Prudential Equity Group,
or PEG, the results of which were historically included in the Financial Advisory segment. As discussed in Note 3 to the Consolidated
Financial Statements, PEG’s operations were substantially wound down by June 30, 2007 and the results of PEG are excluded from the
results of the Financial Advisory segment and reflected in discontinued operations for all periods presented.
2007 to 2006 Annual Comparison. Adjusted operating income increased $270 million, from $27 million in 2006 to $297 million in
2007. The segment’s results for 2007 include our share of earnings from Wachovia Securities, on a pre-tax basis, of $370 million,
compared to $294 million in 2006, reflecting increased income from fees and commissions, including a greater contribution from equity
syndication activity, of the joint venture. The segment’s results also include expenses of $73 million in 2007 related to obligations and
costs we retained in connection with the contributed businesses, primarily for litigation and regulatory matters, compared to $267 million in
2006. These expenses, in 2006, reflected an increase in our reserve for settlement costs related to market timing issues involving the former
Prudential Securities operations, with respect to which a settlement was reached in August 2006.
2006 to 2005 Annual Comparison. Adjusted operating income increased $282 million, from a loss of $255 million in 2005 to
income of $27 million in 2006. The segment’s results for 2006 include our share of earnings from Wachovia Securities, on a pre-tax basis,
of $294 million, compared to $217 million in 2005 before transition costs, reflecting increased fee income of the joint venture. The
segment’s results also include expenses of $267 million in 2006 related to obligations and costs we retained in connection with the
contributed businesses primarily for litigation and regulatory matters, compared to $452 million during 2005. Expenses in 2006 and 2005
reflected increases in our reserve for settlement costs related to market timing issues involving the former Prudential Securities operations,
with respect to which the Company announced that a settlement was reached in August 2006. There are no transition costs in 2006 as the
business integration was completed during the first half of 2005. Transition costs were $20 million in 2005.
Retirement
Operating Results
The following table sets forth the Retirement segment’s operating results for the periods indicated.
Year ended December 31,
2007 2006 2005
(in millions)
Operating results:
Revenues ........................................................................................ $4,682 $4,378 $4,025
Benefits and expenses .............................................................................. 4,226 3,869 3,527
Adjusted operating income .......................................................................... 456 509 498
Realized investment gains (losses), net, and related adjustments(1) ........................................... (102) (137) 26
Related charges(2) ................................................................................. (1) 5 (12)
Investment gains (losses) on trading account assets supporting insurance liabilities, net(3) ........................ 97 9 (219)
Change in experience-rated contractholder liabilities due to asset value changes(4) .............................. (86) 39 142
Income from continuing operations before income taxes and equity in earnings of operating joint ventures ........... $ 364 $ 425 $ 435
(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, including a discussion of the change in the reinsurance arrangement associated with the guaranteed
cost business.
On December 31, 2007 we acquired a portion of Union Bank of California, N.A.’s retirement business, including $7.3 billion in full
service retirement account values, for $103 million of cash consideration. The retirement account values related to this acquisition
primarily consist of mutual funds and other client assets we administer, and are not reported on our balance sheet.
36 Prudential Financial 2007 Annual Report