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Prudential Financial 2001 Annual Report - page 72 / 172

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Prudential Financial, Inc.

Division operating results: Revenues(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benefits and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$4,694 4,171

$2,624 2,302

$2,102 1,869

Adjusted operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 523

$ 322

$ 233

Year Ended December 31, 2001 2000 1999 (in millions)

Adjusted operating income by segment: International Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International Securities and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item excluded from adjusted operating income: Realized investment gains, net of losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Income from continuing operations before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 611 (88)

523

(57) $ 466

$ 296

$ 218

26

15

(15)

9

$ 307

$ 242

322

233

(1) Revenues exclude realized investment gains, net of losses.

2001 to 2000 Annual Comparison. Adjusted operating income of our International division increased $201 million, or 62%, in 2001 from 2000. The increase came from an increase of $315 million in adjusted operating income from our International Insurance segment, including $262 million from Gibraltar Life which we acquired in 2001, as discussed below. This increase was partially offset by a $114 million decline in adjusted operating income from our International Securities and Investments segment. Income from continuing operations before income taxes increased by $159 million, or 52%, in 2001 from 2000 as a result of the increase in adjusted operating income, which was partially offset by a $42 million increase in realized investment losses. For a discussion of realized investment gains and losses, and charges related to realized investment gains and losses, see “—Consolidated Results of Operations—Realized Investment Gains.”

2000 to 1999 Annual Comparison. Adjusted operating income of our International division increased $89 million, or 38%, in 2000 from 1999 due to increases in both segments in the division. Income from continuing operations before income taxes increased $65 million, or 27%, in 2000 from 1999. The increase came from the $89 million increase in adjusted operating income, which was partially offset by a $24 million decrease in realized investment gains, net of losses.

International Insurance

Our international insurance operations are subject to currency fluctuations that can materially impact the U.S. dollar results of our international insurance operations from period to period even if results on a local currency basis are relatively constant. Exchange rates fluctuated significantly in the three years ended December 31, 2001. The financial results of our International Insurance segment reflect the impact of our currency hedging strategies including internal hedges, whereby some currency fluctuation exposure is assumed in our Corporate and Other operations. Unless otherwise stated, we have translated all information in this section on the basis of exchange rates in accordance with GAAP. To achieve a better understanding of local operating performance, where indicated below, we analyze results both on the basis of GAAP translated results and on the basis of local results translated at a constant exchange rate. When we discuss constant exchange rate information below, we translated on the basis of the average exchange rates for the year ended December 31, 2001.

70

Growing and Protecting Your Wealth

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