Prudential 2003 Annual Report Download - page 44

interest expenses resulting from these actions, as well as the $27 million decrease in implementation costs, which
together more than offset the negative impact of the continued decline in retail client commissions and net interest
revenue. Adjusted operating income from our equity sales and trading operations increased $4 million, to $44 million
for 2002, due primarily to cost reduction initiatives and a decrease in costs associated with implementing these
initiatives, from $15 million in 2001 to $5 million in 2002.
Retirement
Operating Results
The following table sets forth the Retirement segment’s operating results for the periods indicated.
Year ended December 31,
2003 2002 2001
(in millions)
Operating results:
Revenues .................................................................................. $2,281 $2,375 $2,394
Benefits and expenses ........................................................................ 2,089 2,234 2,284
Adjusted operating income .................................................................... 192 $ 141 $ 110
Realized investment losses, net, and related adjustments(1) ....................................... (1) (383) (100)
Related charges(2) ....................................................................... 5 7 14
Income (loss) from continuing operations before income taxes ........................................ $ 196 $ (235) $ 24
(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 net 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.”
Adjusted Operating Income
2003 to 2002 Annual Comparison. Adjusted operating income increased $51 million, or 36%, in 2003 from
2002. Our guaranteed products business reported adjusted operating income of $193 million in 2003, an increase of
$28 million from 2002, reflecting more favorable investment results and lower operating expenses in the current year,
partially offset by an $18 million decrease in income from prepayments of investments. As a result of the interest rate
and market environment, our results reflect higher than expected income from prepayment activity and favorable
market conditions which may not continue at the same pace. The remainder of the increase in adjusted operating
income came from the segment’s full service defined contribution business, which also benefited from more favorable
investment results and lower operating expenses in 2003.
2002 to 2001 Annual Comparison. Adjusted operating income increased $31 million, or 28%, in 2002 from
2001 reflecting an increase in adjusted operating income of $26 million from our guaranteed products business and a
$5 million reduction in the loss from our full service defined contribution business. Our guaranteed products business
reported adjusted operating income of $165 million in 2002. The increase reflects income in 2002 of $30 million from
a single mortgage loan prepayment and the recording of a $29 million charge to recognize increased estimates of policy
liabilities in 2001. Absent the impact of these items, adjusted operating income for the guaranteed products business
decreased $33 million, or 20%, mostly due to lower investment results in 2002.
Revenues
2003 to 2002 Annual Comparison. Revenues, as shown in the table above under “—Operating Results,”
decreased $94 million, or 4%, from 2002 to 2003. Net investment income decreased $47 million, from $2.090 billion in
2002 to $2.043 billion in 2003, due primarily to an $18 million decrease in income from prepayments of investments
and a decline in yields resulting from the reinvestment of assets in a lower interest rate environment. Premiums
decreased $48 million on our guaranteed products business primarily as a result of lower single premium annuity and
structured settlement product sales.
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