Prudential 2012 Annual Report Download - page 211

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
22. SEGMENT INFORMATION (continued)
Adjusted operating income excludes net investment gains and losses on trading account assets supporting insurance liabilities, which is
consistent with the exclusion of realized investment gains and losses with respect to other investments supporting insurance liabilities managed
on a consistent basis. In addition, to be consistent with the historical treatment of charges related to realized investment gains and losses on
investments, adjusted operating income also excludes the change in contractholder liabilities due to asset value changes in the pool of
investments (including changes in the fair value of commercial mortgage and other loans) supporting these experience-rated contracts, which are
reflected in “Interest credited to policyholders’ account balances.” These adjustments are in addition to the exclusion from adjusted operating
income of net investment gains and losses on the related derivatives and commercial mortgage and other loans through “Realized investment
gains (losses), net, and related charges and adjustments,” as discussed above. The result of this approach is that adjusted operating income for
these products includes net fee revenue and interest spread the Company earns on these experience-rated contracts, and excludes changes in fair
value of the pool of investments, both realized and unrealized, that are expected to ultimately accrue to the contractholders.
Divested businesses
The contribution to income/loss of divested businesses that have been or will be sold or exited, including businesses that have been
placed in wind down, but that did not qualify for “discontinued operations” accounting treatment under U.S. GAAP, are excluded from
adjusted operating income as the results of divested businesses are not relevant to understanding the Company’s ongoing operating results.
In July 2012, the Company announced its decision to cease sales of group long-term care insurance reflecting the challenging
economics of the long-term care market including the continued low interest rate environment as well as its desire to focus resources on its
core group life and disability businesses. The Company discontinued sales of group long-term care products effective August 1, 2012, or a
later date as may be required by specific state law. The Company notified its clients of its intent to continue to accept enrollments on
existing group long-term care contracts through June 30, 2013 or later as required by contractual provisions. In March 2012, the Company
also discontinued sales of individual long-term care products. As a result of the decision to wind down this business, the Company has
reflected the results of the long-term care insurance business, previously reported within the Group Insurance segment, as a divested
business for all periods presented.
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests
Equity in earnings of operating joint ventures, on a pre-tax basis, are included in adjusted operating income as these results are a
principal source of earnings. These earnings are reflected on a U.S. GAAP basis on an after-tax basis as a separate line on the Company’s
Consolidated Statements of Operations.
Earnings attributable to noncontrolling interests are excluded from adjusted operating income. Earnings attributable to noncontrolling
interests represents the portion of earnings from consolidated entities that relates to the equity interests of minority investors, and are
reflected on a U.S. GAAP basis as a separate line on the Company’s Consolidated Statements of Operations.
The summary below reconciles adjusted operating income before income taxes for the Financial Services Businesses to income from
continuing operations before income taxes and equity in earnings of operating joint ventures:
Years Ended December 31,
2012 2011 2010
(in millions)
Adjusted Operating Income before income taxes for Financial Services Businesses by Segment:
Individual Annuities .............................................................................. $1,039 $ 662 $ 950
Retirement ...................................................................................... 638 594 565
Asset Management ............................................................................... 503 782 506
Total U.S. Retirement Solutions and Investment Management Division .............................. 2,180 2,038 2,021
Individual Life .................................................................................. 384 482 482
Group Insurance ................................................................................. 16 163 174
Total U.S. Individual Life and Group Insurance Division ......................................... 400 645 656
International Insurance ............................................................................ 2,704 2,263 1,887
Total International Insurance Division ........................................................ 2,704 2,263 1,887
Corporate Operations ............................................................................. (1,335) (1,110) (936)
Total Corporate and Other ................................................................. (1,335) (1,110) (936)
Adjusted Operating Income before income taxes for Financial Services Businesses ............................ 3,949 3,836 3,628
Reconciling items:
Realized investment gains (losses), net, and related adjustments ........................................ (3,666) 2,503 152
Charges related to realized investment gains (losses), net ............................................. 857 (1,656) (179)
Investment gains (losses) on trading account assets supporting insurance liabilities, net ..................... 610 223 501
Change in experience-rated contractholder liabilities due to asset value changes ........................... (540) (123) (631)
Divested businesses .......................................................................... (597) 101 18
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests ............. (1) (189) (95)
Income from continuing operations before income taxes and equity in earnings of operating joint ventures for Financial
Services Businesses ................................................................................ 612 4,695 3,394
Income from continuing operations before income taxes and equity in earnings of operating joint ventures for Closed Block
Business ......................................................................................... 64 214 746
Income from continuing operations before income taxes and equity in earnings of operating joint ventures .............. $ 676 $4,909 $4,140
Prudential Financial, Inc. 2012 Annual Report 209