Prudential 2003 Annual Report Download - page 33

on market credit cycles and can vary considerably across periods. The timing of other sales that would result in gains or
losses is largely subject to our discretion and influenced by market opportunities. Trends in the underlying profitability
of our businesses can be more clearly identified without the fluctuating effects of these transactions. Adjusted
operating income excludes life insurance sales practices remedies and costs relating to the settlement of individual life
insurance sales practices issues for the period from 1982 through 1995 because they relate to a substantial and
identifiable non-recurring event. Adjusted operating income excludes the results of divested business, which are not
indicative of our future operating results. Adjusted operating income also excludes demutualization costs and expenses
as they are directly related to demutualization and would distort the trends associated with ongoing operations.
Results of Operations for Financial Services Businesses by Segment
Insurance Division
Individual Life and Annuities
Operating Results
The following table sets forth the Individual Life and Annuities segment’s operating results for the periods
indicated.
Year ended December 31,
2003 2002 2001
(in millions)
Operating results:
Revenues:
Individual Life ........................................................................... $1,936 $1,952 $1,907
Individual Annuities ....................................................................... 1,146 744 801
3,082 2,696 2,708
Benefits and expenses:
Individual Life ........................................................................... 1,579 1,520 1,625
Individual Annuities ....................................................................... 884 786 694
2,463 2,306 2,319
Adjusted operating income:
Individual Life ........................................................................... 357 432 282
Individual Annuities ....................................................................... 262 (42) 107
619 390 389
Realized investment losses, net, and related adjustments(1) ........................................ (41) (162) (108)
Related charges(2) ........................................................................ (13) 15 12
Income from continuing operations before income taxes ............................................... $ 565 $ 243 $ 293
(1) Revenues exclude realized investment gains (losses), net, and related adjustments. For a discussion of these items see “—Realized Investment
Gains and General Account Investments—Realized Investment Gains.”
(2) Benefits and expenses exclude related charges which represent the unfavorable (favorable) impact of realized investment gains (losses), net, on
change in reserves and deferred policy acquisition cost amortization. For a discussion of these items see “—Realized Investment Gains and
General Account Investments —Realized Investment Gains.”
On May 1, 2003, we completed our acquisition of Skandia U.S. Inc., which included American Skandia for a total
purchase price of $1.184 billion. Beginning May 1, 2003, the results of American Skandia have been included in our
consolidated results and are included as a component of our annuity business discussed below. See Note 3 to the
Consolidated Financial Statements for further discussion of this acquisition and purchase price allocation.
Adjusted Operating Income
2003 to 2002 Annual Comparison. The decrease in adjusted operating income for the segment’s individual life
insurance business is primarily the result of claims experience, net of reinsurance, less favorable than in the prior year,
partially offset by the favorable impact of increases in the market value of variable life insurance assets.
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