Prudential 2001 Annual Report Download - page 81

Prudential Financial, Inc.
and identifiable non-recurring event. We exclude the gains and losses and contribution to income/loss of divested
businesses because, as a result of our decision to dispose of these businesses, these results are not relevant to the
profitability of our ongoing operations and could distort the trends associated with our ongoing businesses. We
exclude demutualization costs and expenses because they are directly related to our demutualization and could
distort the trends associated with our business operations.
Year Ended December 31,
2001 2000 1999
(in millions)
Adjusted operating income:
Corporate-level activities(1) .................................................................. $ 70 $ (22) $ 126
Other businesses:
International ventures ................................................................... (50) (32) (11)
Other ................................................................................ 8 50 22
Total ............................................................................ 28 (4) 137
Items excluded from adjusted operating income:
Sales practices remedies and costs ............................................................. — — (100)
Realized investment gains, net of losses ......................................................... 187 (280) 357
Divested businesses ........................................................................ (147) (636) (47)
Demutualization costs and expenses ............................................................ (588) (143) (75)
Income (loss) from continuing operations before income taxes ........................................... $(520) $(1,063) $ 272
(1) Includes consolidating adjustments.
Corporate-level activities consist primarily of corporate-level income and expenses not allocated to any of our
business segments, including costs for company-wide initiatives such as enhancement of our Internet capabilities
and income from our qualified pension plans, as well as investment returns on our unallocated equity, which is
capital that is not deployed in any of our segments. Our Corporate and Other operations also include returns from
investments that we do not allocate to any of our business segments, including a debt-financed investment portfolio,
and transactions with other segments. Our policy is to include expenses incurred by corporate-level functions such
as operations and systems, human resources, financial management, auditing, law and compliance in the operating
results of our business segments to the extent that the expenses are either directly or indirectly attributable to the
operations of the segment. We include expenses incurred by corporate-level functions that are not allocated to any
of our business segments, such as research and development pertaining to company-wide information technology
applications or marketing expenses not specific to a particular business unit, in corporate-level activities.
2001 to 2000 Annual Comparison. Corporate and Other operations resulted in adjusted operating income of $28
million in 2001 and a $4 million loss, on an adjusted operating income basis, in 2000, an increase of $32 million.
Corporate-level activities resulted in adjusted operating income of $70 million in 2001 and a $22 million loss, on an
adjusted operating income basis, in 2000. The $92 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 Other Asset Management 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. This income is partially offset in our consolidated results by charges for our other retirement plans allocated
both to Corporate and Other operations and our business segments. On a consolidated basis, our net pension credit
related to continuing operations amounted to $457 million in 2001 and $362 million in 2000. The contribution to
adjusted operating income from income from our own qualified pension plan has increased during recent periods.
We expect that income from our own qualified pension plan will continue to contribute to adjusted operating
income in 2002 at a level about 10% below that of 2001. 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
Prudential Financial 2001 Annual Report 79