Prudential 2006 Annual Report Download - page 168

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
20. SEGMENT INFORMATION (continued)
the Company’s 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 its
Life Planner operations. 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 operation. 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 allocations to any business segments, including income and expense from the
Company’s qualified pension and other employee benefit plans and investment returns on capital that is 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) businesses that we have placed in wind-down status but
have not divested, such as certain individual life insurance polices assumed under reinsurance and individual health insurance. The
divested businesses consist primarily of property and casualty insurance businesses and Prudential Securities capital markets
business.
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 10); 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
12) 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, equity in earnings of operating joint ventures, 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,
equity in earnings of operating joint ventures, extraordinary gain on acquisition and cumulative effect of accounting change” for the
following items, which are described in greater detail below:
• realized investment gains (losses), net, 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 but that did not qualify for
“discontinued operations” accounting treatment under U.S. GAAP; and
• equity in earnings of operating joint ventures.
PRUDENTIAL FINANCIAL, INC. 2006 ANNUAL REPORT
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