Prudential 2005 Annual Report Download - page 151

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
20. SEGMENT INFORMATION (continued)
addition to other segments of the Company. The Financial Advisory segment includes, effective July 1, 2003, the Company’s
investment in Wachovia Securities. This segment also includes the equity sales, trading and research operations. The Retirement
segment manufactures and distributes products and provides administrative services for qualified and non-qualified retirement plans
and offers guaranteed investment contracts, funding agreements, institutional and retail notes, structured settlement annuities and
group annuities.
International Insurance and Investments Division. The International Insurance and Investments division consists of the
International Insurance and International Investments segments. The International Insurance segment manufactures and distributes
individual life insurance products to the mass affluent and affluent markets in Japan, Korea and other foreign countries through Life
Planners. In addition, similar products are offered to the broad middle income market across Japan through Life Advisors, the
proprietary distribution channel of the Company’s Gibraltar Life operations. The International Investments segment offers
proprietary and non-proprietary asset management, investment advice and services to retail and institutional clients in selected
international markets.
Corporate and Other. Corporate and Other includes corporate operations that are not allocated to business segments and the
real estate and relocation services operations, as well as divested businesses. Corporate operations consist primarily of
(1) corporate-level income and expenses, after allocation to any business segments, including income from the Company’s qualified
pension plans and investment returns on capital not deployed in any segments; (2) returns from investments not allocated to any
business segments, including a debt-financed investment portfolio, and transactions with other segments and consolidating
adjustments; and (3) wind-down businesses which include certain individual life insurance polices assumed under reinsurance and
individual health insurance. The divested businesses consist primarily of Canadian operations, property and casualty insurance
businesses, Prudential Securities capital markets and Gibraltar Casualty Company.
Closed Block Business. 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 9); 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 11) and
certain related assets and liabilities.
Segment Accounting Policies. The accounting policies of the segments are the same as those described in Note 2. Results for
each segment include earnings on attributed equity established at a level which management considers necessary to support each
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.” Adjusted operating income does not equate to “income from continuing operations before income
taxes, extraordinary gain on acquisition and cumulative effect of accounting change” or “net income” as determined in accordance
with U.S. GAAP but is the measure of segment profit or loss used by the Company to evaluate segment performance and allocate
resources, and, consistent with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” is the
measure of segment performance presented below.
Adjusted operating income is calculated by adjusting each segment’s “income from continuing operations before income taxes,
extraordinary gain on acquisition and cumulative effect of accounting change” to exclude the following items, which are described
in greater detail below:
• realized investment gains (losses), net, except as indicated below, and related charges and adjustments;
• net investment gains and losses on trading account assets supporting insurance liabilities and changes in experience-rated
contractholder liabilities due to asset value changes; and
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