01—Abstract
Summary
Summary of the 10-K filed March 10, 2004. Cited figures are marked; the original filing is the authoritative source.
Prudential Financial, Inc. reported net income of $1.264 billiona for 2003, compared with $194 million in 2002, on income from continuing operations before income taxes of $1.958 billion.
The company describes itself as one of the largest U.S. financial services institutions, operating in the U.S. and over 30 other countries. Results are split between the Financial Services Businesses (income from continuing operations before taxes of $1.588 billionb) and the Closed Block Business ($370 million), which reflects the demutualization of Prudential Insurance on December 18, 2001. Total revenues were $27.907 billion and total assets were $321.274 billion at year-end 2003.
During 2003 the company acquired Skandia U.S. (American Skandia) for a total purchase price of $1.184 billionc, and combined its retail brokerage operations with Wachovia into a joint venture in which it holds a 38% interest. It also sold its property and casualty insurance businesses, recording a pre-tax loss of $491 million on the disposition. Management repurchased 29.1 million shares of Common Stock for about $1.0 billion and raised the annual Common Stock dividend to $0.50 per share.
In early 2004 the board authorized up to $1.5 billiond of share repurchases for 2004, and the company agreed to acquire CIGNA's retirement business for a cash price of $2.1 billion, expected to close in the first half of 2004. Investors should note the company's reliance on the Closed Block structure, under which Class B Stock dividends and the $1.75 billion IHC debt are tied to Closed Block performance, and the open litigation disclosed in Item 3, including a $269 million judgment under appeal against Prudential Securities. Total stockholders' equity was $21.292 billion at December 31, 2003.
02—Key points
Key Highlights
- Net income rose to $1.264 billion in 2003 from $194 million in 2002; income from continuing operations before income taxes was $1.958 billion versus $80 million.
- Total revenues were $27.907 billion in 2003, up from $26.303 billion in 2002, with realized investment gains of $270 million versus losses of $1.365 billion a year earlier.
- Acquisition of Skandia U.S. (American Skandia) completed May 1, 2003 for a total purchase price of $1.184 billion.
- Retail securities brokerage combined with Wachovia into Wachovia Securities, in which Prudential holds a 38% interest; the company also recorded a $491 million pre-tax loss on the sale of its property and casualty insurance operations.
- Repurchased 29.1 million shares of Common Stock for about $1.0 billion in 2003; annual Common Stock dividend increased to $0.50 per share from $0.40.
- Agreed in November 2003 to acquire CIGNA's retirement business for a cash purchase price of $2.1 billion, expected to close in the first half of 2004.
- Total assets were $321.274 billion and stockholders' equity was $21.292 billion at December 31, 2003; the company had 39,422 employees.
03—Questions
Frequently Asked Questions
How did Prudential's earnings change in 2003?
Net income was $1.264 billion in 2003 compared with $194 million in 2002. Income from continuing operations before income taxes was $1.958 billion, up from $80 million, driven by a $1.013 billion improvement in realized investment results and higher income from the Closed Block Business, which reported $370 million of pre-tax income versus a $757 million loss in 2002.
What are the two classes of common stock and how do they differ?
Common Stock reflects the performance of the Financial Services Businesses and trades on the NYSE under the symbol PRU. Class B Stock reflects the performance of the Closed Block Business, is not publicly traded, and was sold in a private placement at demutualization. Class B dividends are payable at least equal to the lesser of a $19.25 million Target Dividend Amount or CB Distributable Cash Flow. Each Common share carries one vote; Class B holders have class voting rights on specified matters.
What is the IHC debt and how does it affect shareholders?
Prudential Holdings, LLC issued $1.75 billion of senior secured notes at demutualization. The IHC debt is expected to be serviced by Closed Block cash flows, and the company includes its interest expense in Closed Block results. Financial results of the Closed Block, including debt service, affect consolidated results and borrowing costs, and Class B dividends are subject to prior servicing of this debt.
What major acquisitions and disposals did Prudential complete or announce?
Completed in 2003: the Skandia U.S. acquisition for $1.184 billion, the Wachovia Securities joint venture (38% interest), and the sale of its property and casualty insurance companies to Liberty Mutual and Palisades Group. Announced: the CIGNA retirement business acquisition for $2.1 billion, expected to close in the first half of 2004, and the acquisition of an 80% stake in Hyundai Investment and Securities Co., Ltd. for approximately $300 million in early 2004.
What material litigation is disclosed?
In Burns v. Prudential Securities, a jury verdict led to a judgment of $269 million, including interest and attorneys' fees, which Prudential Securities has appealed. The company is also responding to regulatory inquiries on mutual fund market timing and late trading, and the Azar modal premium class action in New Mexico remains pending. Management stated that the ultimate outcome of pending matters should not have a material adverse effect on financial position, though results in a particular period could be materially affected.
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