Prudential 2001 Annual Report Download - page 77

Prudential Financial, Inc.
Expenses
2001 to 2000 Annual Comparison. Expenses, as shown in the table above under “—Operating Results,” decreased
$42 million, or 6%, from 2000 to 2001. Expenses of our international securities operations decreased $56 million,
due primarily to decreases in revenue-based compensation costs. During 2001, our international securities
operations incurred $30 million of expenses relating to staff reductions and facilities consolidations, while expenses
in 2000 reflected about $9 million of such costs. Expenses of our international investments operations increased $14
million, reflecting expenses from recently acquired units.
2000 to 1999 Annual Comparison. Expenses increased $113 million, or 20%, from 1999 to 2000. Expenses of our
international securities operations increased $76 million, primarily as a result of increased compensation paid to
Financial Advisors on higher commission revenues, increased formula-based and incentive compensation on higher
revenues and earnings, increased expenses from a London-based broker and asset manager that we acquired in 1999
and costs to expand our securities operations in Asia and Latin America. Expenses of our international investment
operations increased $37 million, reflecting expenses from the development of this business.
Asset Management Division
The Asset Management division, through our Investment Management and Advisory Services segment, receives
asset-based management fees from the businesses of the U.S. Consumer and Employee Benefits divisions, from
third parties, and also from the Closed Block Business. The Other Asset Management segment includes our
commercial mortgage securitization operations and investment research activities supporting our Private Client
Group operations. This segment also participates in securities underwritings where our research efforts are attractive
to issuers and lead underwriters, engages in equity securities sales and trading, manages our hedge portfolios. We
include the division’s asset-based management fees in the line captioned “Commissions and other income” in our
consolidated statements of operations.
The Asset Management division pays the expenses of its own portfolio managers for asset management and the
expenses of its own proprietary sales force for distribution of products to third parties.
Profitability of the Asset Management division depends primarily on our ability to develop and retain a base of
assets under management, both through the U.S. Consumer and Employee Benefits divisions and directly from third
parties, on which we can earn asset-based fees, and to manage the level of expenses incurred in the management of
those assets. We generally base asset management fees on the market value of the underlying assets and,
accordingly, profitability varies as these market values change due to external factors, such as securities market
conditions and interest rates and other factors that may affect the values of particular investments. We also earn
transaction-based and performance-based fees which depend on such external factors. In addition, revenue streams,
including mark-to-market adjustments, from our commercial mortgage securitizations and hedge portfolios are
subject to market fluctuations.
Division Results
The following table sets forth the Asset Management division’s results for the periods indicated.
Year Ended December 31,
2001 2000 1999
(in millions)
Division operating results:
Revenues(1) .............................................................................. $1,272 $1,344 $1,141
Benefits and expenses ....................................................................... 1,053 1,068 889
Adjusted operating income ................................................................... $ 219 $ 276 $ 252
Adjusted operating income by segment:
Investment Management and Advisory Services .................................................. $ 105 $ 154 $ 155
Other Asset Management .................................................................... 114 122 97
Total ................................................................................ 219 276 252
Items excluded from adjusted operating income:
Realized investment gains, net of losses ......................................................... (8) 1 1
Income from continuing operations before income taxes ................................................ $ 211 $ 277 $ 253
(1) Revenues exclude realized investment gains, net of losses.
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