01—Abstract
Summary
Summary of the 10-K filed February 27, 2008. Cited figures are marked; the original filing is the authoritative source.
Prudential Financial, Inc. (NYSE: PRU) reported approximately $648 billiona of assets under management as of December 31, 2007, with operations in the United States, Asia, Europe and Latin America.
The company is organized into the Financial Services Businesses (Insurance, Investment, and International Insurance and Investments divisions, plus Corporate and Other) and the Closed Block Business, which holds the in-force traditional participating policies from its December 2001 demutualization. Common Stock reflects the Financial Services Businesses and Class B Stock reflects the Closed Block Business; the two are not legally separated, so results of the Closed Block, including interest on the $1.75 billionb IHC debt, affect consolidated results. In 2007, consolidated net income was $3.704 billion (versus $3.428 billion in 2006) and total revenues were $34.401 billion.
Income from continuing operations for the Financial Services Businesses rose to $3.497 billionc, and diluted income per Common Stock share from continuing operations was $7.58 (versus $6.36). Results were pressured in the second half of 2007 by adverse credit markets, including $161 million of adjusted operating income impact from declines in externally managed European investments, $82 million of charges tied to payments to plan clients in the State Street Global Advisors matter, and sub-prime related impairments and sales losses. Stockholders' equity was $23.457 billion at year-end.
Capital deployment remained a major focus: the company repurchased 32.0 million shares for $3.0 billiond in 2007, raised the annual Common Stock dividend 21% to $1.15 per share, issued $3.0 billion of floating rate convertible senior notes in December 2007, and authorized up to $3.5 billion of repurchases for 2008. The filing also describes material litigation exposure, including a New Jersey action (Lederman) in which plaintiffs demanded $6.5 billion in damages, though management believes the ultimate outcome of pending matters is not likely to have a material adverse effect on financial position.
02—Key points
Key Highlights
- Total assets under management of approximately $648 billion as of December 31, 2007, with 40,703 employees at year-end.
- Consolidated net income of $3.704 billion in 2007, up from $3.428 billion in 2006; total revenues of $34.401 billion.
- Financial Services Businesses income from continuing operations of $3.497 billion; diluted income from continuing operations per Common Stock share of $7.58, up from $6.36.
- Share repurchases of $3.0 billion (32.0 million shares) in 2007, and a new authorization of up to $3.5 billion for calendar 2008.
- Annual Common Stock dividend increased 21% to $1.15 per share; Class B Stock dividend unchanged at $9.625 per share.
- Adverse 2H 2007 market conditions, including a $161 million adjusted operating income impact from declines in externally managed European investments and $65 million of sub-prime asset-backed impairments in the Financial Services Businesses.
- Ratings: Prudential Insurance rated AA by S&P (raised from AA- in May 2007), with long-term senior debt of Prudential Financial rated A+ by S&P and a3 by Moody's.
03—One dollar
04—Financials
05—Questions
Frequently Asked Questions
What is the structure of Prudential's two classes of common stock?
Common Stock (NYSE: PRU) reflects the performance of the Financial Services Businesses, while Class B Stock, issued in a private placement and not publicly traded, reflects the Closed Block Business. There is no legal separation between the two businesses, so holders of each class bear all risks of the overall company, and the Closed Block results (including IHC debt interest) affect consolidated results.
How did Prudential perform financially in 2007?
Consolidated net income rose to $3.704 billion from $3.428 billion in 2006. Income from continuing operations for the Financial Services Businesses was $3.497 billion, and diluted income per Common Stock share from continuing operations was $7.58, compared with $6.36 in 2006. Total stockholders' equity was $23.457 billion at December 31, 2007.
What did the company do with its capital in 2007?
Prudential repurchased 32.0 million Common Shares for $3.0 billion, increased the annual Common Stock dividend 21% to $1.15 per share, and issued $3.0 billion of floating rate convertible senior notes in December 2007. In November 2007 the Board authorized up to $3.5 billion of repurchases for calendar 2008.
What were the main pressures on 2007 results?
The filing cites adverse market conditions in the second half of 2007, including a $161 million adjusted operating income impact from declines in the market value of externally managed investments in the European market, an $82 million charge in the Retirement segment related to payments to plan clients in the SSgA matter, and sub-prime related losses and impairments on asset-backed securities. Closed Block pre-tax income declined $113 million, reflecting higher policyholder dividends.
What are the most significant litigation exposures disclosed?
The most prominent matter is Lederman v. Prudential Financial, Inc., a New Jersey state court action involving claims tied to an alternative dispute resolution agreement with a law firm representing former employees; in January 2008 plaintiffs demanded damages of $6.5 billion. The filing also describes regulatory inquiries on payments to insurance intermediaries, reinsurance accounting reviews, and wage-and-hour class actions. Management believes the ultimate outcome of pending matters is not likely to have a material adverse effect on financial position, although it notes results could be materially affected in a particular period.
06—Continue