Prudential 2002 Annual Report Download - page 70
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Please find page 70 of the 2002 Prudential annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Corporate-level activities resulted in adjusted operating income of $90 million in 2001 and a $21 million
loss, on an adjusted operating income basis, in 2000. The $111 million increase came primarily from $125 million
greater income from our own qualified pension plan and a $22 million reduction in hedging losses retained at the
corporate level, partially offset by reduced investment income and a $20 million charge offsetting the income
earned by Prudential Securities as co-manager in the initial public offering of our Common Stock, which is
included in adjusted operating income of our Financial Advisory segment.
Income from our own qualified pension plan amounted to $540 million in 2001, compared to $415 million in
2000. The $125 million increase came primarily from increased income on pension assets and amortization of
deferred gains.
Hedging losses retained at the corporate level decreased $22 million from $26 million in 2000 to $4 million
in 2001. The increase in income from our own qualified pension plan and decrease in hedging losses were
partially offset by reductions in investment income from our debt-financed investment portfolio and from invested
assets that we held pending disbursement for sales practices remedies and costs. Investment income from the
debt-financed investment portfolio, net of interest expense, contributed $38 million to adjusted operating income
for 2001 compared to $98 million for 2000, as a result of a decline in the assets in the portfolio to approximately
$223 million at December 31, 2001 from $3.7 billion a year earlier. Income from invested assets related to sales
practices remedies and costs declined $25 million as disbursements were made to satisfy these liabilities.
Investment income for 2001 included about $15 million relating to assets initially invested within our Corporate
and Other operations as a result of transactions relating to our demutualization, effective as of December 18,
2001. About half of this investment income represents earning on assets corresponding to cash payments in
January 2002 for demutualization consideration in lieu of Common Stock.
General and administrative expenses at the corporate level, on a gross basis before qualified pension income,
amounted to $671 million in 2001 compared to $687 million in 2000.
Other businesses included in Corporate and Other operations resulted in a loss, on an adjusted operating
income basis of $26 million in 2001 compared to income of $64 million in 2000. The $90 million decline came
primarily from the benefit to 2000 results from reductions of reserves for future claims in our remaining Canadian
insurance operations and our wind-down group credit insurance operations. In addition, our real estate and
relocation business reported a loss, on an adjusted operating income basis, of $11 million in 2001 versus adjusted
operating income of $31 million in 2000. The loss in 2001 resulted from expenses of $35 million from
consolidation of operating facilities as well as a decline in corporate relocation volume.
Closed Block Business
As discussed under “Overview—Financial Services Businesses and Closed Block Business,” we established
the Closed Block Business effective at the date of demutualization. The Closed Block Business, which represents
results of our former Traditional Participating Products segment prior to the demutualization, includes our in force
traditional participating life insurance and annuity products, and assets that are being used for the payment of
benefits and policyholder dividends on these policies, as well as other assets and equity and related liabilities that
support these policies. We have ceased offering these participating policies.
Also concurrently with our demutualization, we issued the IHC debt. We allocated the majority of the net
proceeds from the issuance of the IHC debt to the Financial Services Businesses. However, we expect that the
IHC debt will be serviced by the net cash flows of the Closed Block Business over time, and results of the Closed
Block Business include interest expense associated with the IHC debt.
Upon the establishment of the Closed Block Business, we transferred $5.6 billion of net assets previously
associated with the former Traditional Participating Products segment to the Financial Services Businesses. As a
result, income (loss) from continuing operations before income taxes of the Closed Block Business excludes
returns on these net assets, which were historically included in income (loss) from continuing operations before
income taxes of the former Traditional Participating Products segment.
Prudential Financial 2002 Annual Report 69