Prudential 2005 Annual Report Download - page 23

Consolidated Results of Operations
The following table summarizes income from continuing operations before extraordinary gain on acquisition and cumulative effect of
accounting change for the Financial Services Businesses and the Closed Block Business as well as other components comprising net
income.
Year ended
December 31,
2005 2004 2003
(in millions)
Financial Services Businesses by segment:
Individual Life and Annuities .......................................................................... $1,030 $ 804 $ 565
Group Insurance .................................................................................... 293 217 117
Total Insurance Division .......................................................................... 1,323 1,021 682
Asset Management .................................................................................. 465 274 213
Financial Advisory .................................................................................. (255) (245) (111)
Retirement ......................................................................................... 435 345 196
Total Investment Division ......................................................................... 645 374 298
International Insurance ............................................................................... 1,401 920 805
International Investments ............................................................................. 110 38 (62)
Total International Insurance and Investments Division ............................................. 1,511 958 743
Corporate and Other ............................................................................. 510 100 (110)
Income from continuing operations before income taxes, extraordinary gain on acquisition and cumulative effect of accounting
change for Financial Services Businesses ................................................................... 3,989 2,453 1,613
Income from continuing operations before income taxes for Closed Block Business ................................... 482 915 370
Income from continuing operations before income taxes, extraordinary gain on acquisition and cumulative effect of accounting
change .............................................................................................. 4,471 3,368 1,983
Income tax expense .................................................................................. 869 955 662
Income from continuing operations before extraordinary gain on acquisition and cumulative effect of accounting change ..... 3,602 2,413 1,321
Loss from discontinued operations, net of taxes ............................................................ (62) (99) (57)
Extraordinary gain on acquisition, net of taxes ............................................................. — 21 —
Cumulative effect of accounting change, net of taxes ....................................................... — (79) —
Net income ............................................................................................ $3,540 $2,256 $1,264
In managing our business, we analyze operating performance separately for our Financial Services Businesses and our Closed Block
Business. For the Financial Services Businesses, we analyze our segments’ operating performance using “adjusted operating income.”
Results of the Closed Block Business for all periods are evaluated and presented only in accordance with GAAP. 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 GAAP but is the measure of segment profit or loss we use
to evaluate segment performance and allocate resources, and consistent with SFAS No. 131, “Disclosures about Segments of an Enterprise
and Related Information,” is our measure of segment performance. Adjusted operating income is calculated for the segments of the
Financial Services Businesses 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:
• 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;
• the contribution to income/loss of divested businesses that have been or will be sold or exited that do not qualify for “discontinued
operations” accounting treatment under GAAP.
The excluded items are important to an understanding of our overall results of operations. Adjusted operating income is not a
substitute for income determined in accordance with GAAP, and our definition of adjusted operating income may differ from that used by
other companies. However, we believe that the presentation of adjusted operating income as we measure it for management purposes
enhances understanding of our results of operations by highlighting the results from ongoing operations and the underlying profitability of
the Financial Services Businesses. Adjusted operating income excludes “Realized investment gains (losses), net,” other than those
representing profit or loss of certain of our businesses which primarily originate investments for sale or syndication to unrelated investors,
and those associated with terminating hedges of foreign currency earnings and current period yield adjustments, as discussed further below.
A significant element of realized investment losses is impairments and losses from sales of credit-impaired securities, the timing of which
depends largely on market credit cycles and can vary considerably across periods. The timing of other sales that would result in gains or
losses is largely subject to our discretion and influenced by market opportunities. Trends in the underlying profitability of our businesses
can be more clearly identified without the fluctuating effects of these transactions. Similarly, adjusted operating income excludes
investment gains and losses on trading account assets supporting insurance liabilities and changes in experience-rated contractholder
liabilities due to asset value changes, because these recorded changes in asset and liability values will ultimately accrue to the
contractholders. Adjusted operating income excludes the results of divested businesses because they are not relevant to understanding our
ongoing operating results. The contributions to income/loss of wind-down businesses that we have not divested remain in adjusted
operating income. See Note 20 to the Consolidated Financial Statements for further information on the presentation of segment results.
Prudential Financial 2005 Annual Report 21