01—Abstract
Summary
Summary of the 10-K filed February 27, 2009. Cited figures are marked; the original filing is the authoritative source.
Prudential Financial, Inc. reported a 2008 net loss of $1.073 billiona, compared with net income of $3.704 billion in 2007, as unfavorable financial markets produced large realized investment losses and charges across its businesses.
The Financial Services Businesses posted a net loss of $1.096 billionb, driven by $2.267 billion of pre-tax net realized investment losses and related adjustments, including other-than-temporary impairments of $2.494 billion. Results were also hit by reserve increases and accelerated amortization tied to the Individual Annuities segment, which reported an adjusted operating loss of $1.077 billion, and by $653 million of impairments on goodwill and operating joint ventures. Stockholders' equity fell to $13.422 billion from $23.457 billion at year-end 2007, reflecting a $6.735 billion net unrealized loss on investments and other comprehensive losses.
To conserve capital and liquidity, management suspended share repurchases in October 2008, cut the annual Common Stock dividend by about 50% to $0.58c per share, drew $3.0 billion from the Federal Home Loan Bank of New York, and applied to the U.S. Treasury's Capital Purchase Program. Several rating agencies lowered Prudential Financial's senior debt and the financial strength ratings of its life insurance subsidiaries in late 2008 and early 2009, and Prudential Financial lost eligibility for the Commercial Paper Funding Facility after Fitch's February 2009 downgrade. The company reported approximately $558 billion of assets under management at December 31, 2008.
The filing also describes the structure of two classes of common stock. The Common Stock reflects the Financial Services Businesses, while the Class B Stock reflects the Closed Block Business, which carries the IHC debt and is not legally separate from the rest of the company.
Investors should note the risk that losses in the Closed Block Business can affect the earnings available to Common Stock holders. Other pending matters include the Garcia retained asset account class action and the Lederman litigation, in which plaintiffs have demanded $6.5 billiond in damages.
02—Key points
Key Highlights
- Net loss of $1.073 billion for 2008, versus net income of $3.704 billion in 2007; diluted loss per share of Common Stock was $(2.42).
- Pre-tax net realized investment losses and related adjustments of the Financial Services Businesses were $2.267 billion, primarily reflecting other-than-temporary impairments of fixed maturity and equity securities of $2.494 billion.
- Individual Annuities segment reported a $1.077 billion adjusted operating loss, reflecting $1.160 billion of charges from reserve increases and deferred acquisition cost amortization tied to market conditions.
- Stockholders' equity declined to $13.422 billion at December 31, 2008, from $23.457 billion, with accumulated other comprehensive loss of $7.343 billion.
- Common Stock dividend was cut about 50% to $0.58 per share, and the 2008 share repurchase program was suspended on October 10, 2008, with no repurchases planned for 2009.
- Ratings were downgraded during late 2008 and early 2009; Fitch lowered Prudential Financial's long-term senior debt to BBB, and S&P lowered it to A, and Prudential Financial lost eligibility for the CPFF.
- Goodwill impairments of $337 million and operating joint venture impairments of $316 million were recorded in the fourth quarter of 2008.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2008filed February 27, 2009Financial Statements
FY2008 against FY2007
| Line item | FY2008FY2007 | Change |
|---|---|---|
| Revenue | $28.99B$34.38B | −15.7% |
| SG&A Expenses | $9.27B$8.82B | +5.1% |
| Interest Expense | $1.32B— | — |
| Net Income | -$1.12B$3.66B | −130.5% |
| EPS (Basic) | $-2.53$7.61 | −133.2% |
| EPS (Diluted) | $-2.53$7.51 | −133.7% |
05—Questions
Frequently Asked Questions
Why did Prudential report a net loss in 2008?
The filing attributes the loss mainly to unfavorable financial market conditions. These produced net realized investment losses of $2.267 billion, mostly from other-than-temporary impairments, along with higher reserves and accelerated amortization for variable annuities and goodwill and joint venture impairments of $653 million in the fourth quarter.
What actions did Prudential take to preserve capital and liquidity?
The company suspended share repurchases effective October 10, 2008, reduced the 2008 Common Stock dividend by about 50% to $0.58 per share, redeployed assets to its domestic insurance subsidiaries, drew $3.0 billion of collateralized borrowings from the FHLB of New York, and applied to the Treasury's Capital Purchase Program.
How are the Common Stock and Class B Stock related?
The Common Stock reflects the Financial Services Businesses, and the Class B Stock reflects the Closed Block Business. There is no legal separation between the two businesses, so the results of the Closed Block Business, including debt service on the IHC debt, can affect consolidated results and the funds available for Common Stock dividends.
What did the rating agencies do to Prudential's ratings?
Moody's affirmed Prudential Financial's A3 senior debt rating but placed its ratings on review for possible downgrade in February 2009. Fitch lowered the senior debt rating to BBB and the life insurance subsidiaries' financial strength ratings to A+, and S&P lowered the senior debt rating to A and the subsidiaries' financial strength ratings to AA-.
What major litigation exposure does the filing disclose?
The Lederman matter, a New Jersey state court case, seeks $6.5 billion in damages. The Garcia purported nationwide class action alleges that death benefits placed in retained asset accounts were wrongfully delayed. Management believes the outcome of pending matters is not likely to have a material adverse effect on financial position, but notes that results could be affected in a particular period.
06—Continue