Long-Duration Targeted Improvements and Resegmentation Impact Summary
Non-GAAP Measures (Continued)
Adjusted operating income excludes "Change in value of market risk benefits, net of related hedging gains (losses)", which reflects the impact from changes in
current market conditions, and market experience updates, reflecting the immediate impacts in current period results from changes in current market conditions on
estimates of profitability, which we believe enhances the understanding of underlying performance trends. Additionally, adjusted operating income excludes other
items, such as certain components of the consideration for acquisitions, which are recognized as compensation expense over the requisite service periods, as well as
changes in the fair value of contingent consideration, and goodwill impairments. Earnings attributable to noncontrolling interests is presented as a separate
component of net income under GAAP and excluded from adjusted operating income. The tax effect associated with pre-tax adjusted operating income is based on
applicable IRS and foreign tax regulations inclusive of pertinent adjustments.
D
Adjusted operating income does not equate to "Net income" as determined in accordance with U.S. GAAP. Adjusted operating income is not a substitute for net
income determined in accordance with U.S. GAAP, and our definition of adjusted operating income may differ from that used by other companies. The items above
are important to an understanding of our overall results of operations. However, we believe that the presentation of adjusted operating income as we measure it for
management purposes enhances the understanding of our results of operations by highlighting the results from ongoing operations and the underlying profitability of
our businesses. Trends in the underlying profitability of our businesses can be more clearly identified without the fluctuating effects of the items described above.
Underlying earnings power is calculated as adjusted operating income excluding what we consider to be non-core items such as the following, to the extent they are
higher or lower than is typical or expected: expenses, variable investment income, and underwriting experience. These items are excluded in order to highlight the
earnings attributable to our core business operations separate from the portion attributable to external factors. We are presenting expected changes in quarterly
underlying earnings power herein to help investors understand the potential impact to our results of the adoption of LDTI accounting and the resegmentation of
Assurance IQ and Prudential Advisors, each to Corporate and Other operations. In this context, we believe underlying earnings power will help investors understand
the expected earnings power of our businesses in future periods. We do not intend to present underlying earnings power in the future other than in the context of the
transition period related to the adoption of LDTI accounting and the resegmentation.
The projections of adjusted operating income and underlying earnings power that are presented herein are forward-looking. Due to the inherent difficulty in reliably
quantifying future realized investment gains/losses and changes in asset and liability values, as well as other non-core items, given their unknown timing and
potential significance, we cannot, without unreasonable effort, provide reconciliations of projected adjusted operating income or underlying earnings power to the
most comparable GAAP measure.
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