Prudential 2003 Annual Report Download - page 52

Corporate-level activities consist primarily of corporate-level income and expenses not allocated to any of our
business segments, costs for company-wide initiatives in years prior to 2003, income from our qualified pension plans
and investment returns on capital that is not deployed in any of our segments. Corporate-level activities also include
returns from investments that we do not allocate to any of our business segments, including a debt-financed investment
portfolio, which was substantially reduced in 2001 and liquidated in 2002, as well as the impact of transactions with
other segments. Corporate-level activities also include certain retained obligations relating to policyholders with whom
we had previously agreed to provide insurance for reduced or no premium in accordance with contractual settlements
related to prior individual life sales practices remediation.
Year ended December 31,
2003 2002 2001
(in millions)
Operating Results:
Corporate-level activities(1) ...................................................................... $ 42 $121 $ 1
Other businesses:
Real Estate and Relocation Services ............................................................ 63 46 (11)
Other .................................................................................... (12) (7) (15)
Adjusted operating income ................................................................... 93 160 (25)
Realized investment gains (losses), net, and related adjustments(2) .................................... (36) (90) 180
Divested businesses(3) ...................................................................... (185) (15) 58
Sales practices remedies and costs(4) ........................................................... — (20) —
Demutualization(5) ......................................................................... — — (588)
Income (loss) from continuing operations before income taxes ........................................... $(128) $ 35 $(375)
(1) Includes consolidating adjustments.
(2) See “—Realized Investment Gains and General Account Investments—Realized Investment Gains.” for a discussion of these items.
(3) See “—Divested Businesses” for a discussion of the results of our divested businesses.
(4) See “—Sales Practices Remedies and Costs” for a discussion of our life insurance sales practices remedies and costs.
(5) See “—Demutualization Costs and Expenses” for a discussion of our demutualization costs and expenses.
2003 to 2002 Annual Comparison. Corporate and Other operations resulted in adjusted operating income of $93
million in 2003 and $160 million in 2002, a decline of $67 million. Adjusted operating income from corporate-level
activities decreased $79 million, from $121 million in 2002 to $42 million in 2003. Income from our qualified pension
plan declined $130 million, from $502 million in 2002 to $372 million in 2003, reflecting a decline in the expected rate
of return on plan assets from 9.50% to 8.75% and a reduction in the discount rate from 7.25% to 6.50%. For purposes
of calculating pension income from our own qualified pension plan for the year ended December 31, 2004, we will
apply a discount rate of 5.75%, compared to 6.50% in 2003, and we will continue to apply an expected return on plan
assets of 8.75% and a 4.50% rate of increase in compensation levels. We determined our expected return on plan assets
based upon the arithmetic average of prospective returns, which is based upon a risk free rate as of the measurement
date adjusted by a risk premium that considers historical statistics and expected investment manager performance, for
equity, debt and real estate markets applied on a weighted average basis to our pension asset portfolio. Giving effect to
the foregoing assumptions, we expect that income from our own qualified pension plan will continue to contribute to
adjusted operating income in 2004, but at a level of about $20 million to $30 million below that of the year 2003. In
2004, pension service costs related to active employees will be allocated to our business segments. The increase in
allocated expenses to our business segments will be partially offset by a reduction in the allocation of other benefit
costs related to non-active employees which will be retained in Corporate-level activities. Investment income, net of
interest expense, declined by $57 million, reflecting the funding of the acquisition of American Skandia and share
repurchases. Corporate-level general and administrative expenses were $551 million in 2003, before qualified pension
income, compared to $626 million in 2002, a decrease of $75 million. General and administrative expenses for 2003
included $37 million of costs related to a structured financing transaction. General and administrative expenses, other
than this cost, decreased by $112 million primarily due to reduced costs pertaining to certain company-wide initiatives,
as well as our outsourcing of certain human resource support functions to a third party.
Corporate-level activities included $23 million of costs in 2003 from retained obligations relating to policyholders
with whom we had previously agreed to provide insurance for reduced or no premium in accordance with contractual
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