Prudential 2003 Annual Report Download - page 163

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
19. SEGMENT INFORMATION (continued)
products to the affluent market in Japan and other foreign markets through life planners. In addition, as a result of the
acquisition of Gibraltar Life, similar products are offered to the broad middle income market across Japan through life
advisors, the proprietary distribution channel of Gibraltar Life. The International Investments segment offers private
banking, asset management, investment advice and product choice to high net worth and mass affluent retail clients and
to institutional clients in selected international markets.
Corporate and Other operations include corporate-level activities and international ventures that are not allocated
to business segments as well as the real estate and relocation services operations and certain divested and wind-down
businesses. The divested businesses consist primarily of the property and casualty insurance business, Gibraltar
Casualty, and Prudential Securities Capital Markets. Wind-down businesses include individual health insurance and
Canadian life insurance. Corporate-level activities include corporate-level income and expenses not allocated to any
business segments, including the cost of company-wide initiatives, investment returns on capital not deployed in any
segments, returns from investments not allocated to any business segments including a debt-financed investment
portfolio, transactions with other segments and consolidating adjustments. Corporate-level activities also include
certain obligations, relating to policyholders whom the Company had previously agreed to provide insurance for
reduced or no premium in accordance with contractual settlements related to prior life insurance sales practices
remediation.
The Closed Block Business, which is managed separately from the Financial Services Businesses, was established
on the date of demutualization. It includes the Closed Block (as discussed in Note 8); assets held outside the Closed
Block necessary to meet insurance regulatory capital requirements related to products included within the Closed
Block; deferred policy acquisition costs related to the Closed Block policies; the principal amount of the IHC debt (as
discussed in Note 10) and related unamortized debt issuance costs and an interest rate swap related to the IHC debt;
and certain other related assets and liabilities. For the periods prior to the date of demutualization, the results of the
Closed Block Business are those of the former Traditional Participating Products segment, which historically sold
primarily participating insurance and annuity products that the Company ceased offering in connection with
demutualization. Upon the establishment of the Closed Block Business, $5.6 billion of net assets previously associated
with the former Traditional Participating Products segment was transferred to the Financial Services Businesses.
Consequently, the results of the Financial Services Businesses for the years ended December 31, 2003 and 2002 and
the period December 18, 2001 through December 31, 2001 include returns on these assets.
The accounting policies of the segments are the same as those described in Note 2, “Summary of Significant
Accounting Policies.” Results for each segment include earnings on attributed equity established at a level which
management considers necessary to support the segment’s risks. Operating expenses specifically identifiable to a
particular segment are allocated to that segment as incurred. Operating expenses not identifiable to a specific segment
that are incurred in connection with the generation of segment revenues are generally allocated based upon the
segment’s historical percentage of general and administrative expenses.
Adjusted Operating Income
In managing the Financial Services Businesses, the Company analyzes the operating performance of each segment
using “adjusted operating income,” which is a non-GAAP measure. Adjusted operating income is calculated by
adjusting income from continuing operations before income taxes to exclude certain items. The items excluded are
realized investment gains, net of losses, and related charges and adjustments (as discussed further below); life
insurance sales practices remedies and costs; the contribution to income/loss of divested businesses that have been or
will be sold or exited that did not qualify for “discontinued operations” accounting treatment under GAAP; and
demutualization costs and expenses.
Prudential Financial 2003 Annual Report 161