01—Abstract
Summary
Summary of the 10-K filed February 25, 2011. Cited figures are marked; the original filing is the authoritative source.
Prudential Financial, Inc. (PRU) reports approximately $784 billiona of assets under management as of December 31, 2010, with operations in the United States, Asia, Europe and Latin America.
The company is split into Financial Services Businesses and a Closed Block Business, which reflect the Common Stock and Class B Stock respectively, though there is no legal separation between them. Financial Services Businesses net income attributable to Prudential Financial was $2.714 billionb in 2010, compared with $3.411 billion in 2009, which included a $1.457 billion after-tax gain on the sale of the Wachovia Securities joint venture interest. Consolidated net income attributable to Prudential Financial was $3.195 billion for 2010, compared with $3.124 billion in 2009.
Key 2010 operating highlights include record Individual Annuity total account values of $106.2 billionc and gross sales of $21.8 billion, and record institutional Asset Management net flows of $28.6 billion. The February 1, 2011 acquisition of AIG's Japanese life insurance businesses (Star and Edison) for a total purchase price of approximately $4.8 billion, comprised of about $4.2 billion in cash and $0.6 billion in assumed third-party debt, is a significant post-year-end event.
The Common Stock dividend for 2010 was $1.15d per share, an increase of approximately 64% from 2009. The filing also highlights risk factors including credit ratings downgrades that could require collateral postings, exposure to Dodd-Frank regulatory changes, and reliance on Japanese operations, which represented 48% of the net premiums, policy charges and fee income of the International Insurance segment's Life Planner and Gibraltar Life operations.
02—Key points
Key Highlights
- Consolidated net income attributable to Prudential Financial, Inc. of $3.195 billion for 2010, versus $3.124 billion in 2009.
- Financial Services Businesses net income of $2.714 billion for 2010, down from $3.411 billion in 2009 due to the 2009 Wachovia Securities gain.
- Individual Annuity total account values reached a record $106.2 billion, with gross sales of $21.8 billion and net sales of $14.6 billion in 2010.
- Asset Management reached record institutional net flows of $28.6 billion and $537 billion in assets under management at year-end 2010.
- Acquisition of AIG Star Life and AIG Edison Life completed on February 1, 2011 for approximately $4.8 billion total purchase price.
- Common Stock dividend declared for 2010 was $1.15 per share, up approximately 64% from $0.70 in 2009.
- Ratings actions in 2010 included a Fitch downgrade of junior subordinated debt to BB+ in January, later upgraded to BBB- in November; A.M. Best revised its outlook to stable in June.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 25, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $38.22B$32.38B | +18.0% |
| Interest Expense | $1.20B$1.10B | +8.7% |
| Net Income | $3.00B$3.12B | −3.9% |
05—Questions
Frequently Asked Questions
What is the structure of Prudential Financial's two classes of common stock?
The Common Stock is publicly traded on the NYSE (PRU) and reflects the performance of the Financial Services Businesses. The Class B Stock was issued through a private placement, does not trade on any exchange, and reflects the performance of the Closed Block Business. The filing states there is no legal separation between the two businesses, and any net losses of the Closed Block Business or dividends on Class B Stock reduce assets legally available for dividends on Common Stock.
What drove the decline in Financial Services Businesses net income in 2010?
Financial Services Businesses net income attributable to Prudential Financial fell to $2.714 billion in 2010 from $3.411 billion in 2009. The decline reflects the absence of the 2009 after-tax gain of $1.457 billion on the sale of the minority joint venture interest in Wachovia Securities. Absent that item, income from continuing operations for the Financial Services Businesses increased $757 million from 2009, per the filing.
What is the purchase price and funding for the AIG Japanese acquisition?
The total purchase price was approximately $4.8 billion, comprised of approximately $4.2 billion in cash and $0.6 billion in assumed third-party debt, substantially all expected to be repaid over time with excess capital of the acquired entities. Approximately $2.0 billion of the funding came from a November 2010 common stock offering and $1.0 billion of medium-term notes, with the remainder funded from approximately $2.2 billion of cash and short-term investments.
What risks could result from credit rating downgrades?
The filing states that a downgrade of three ratings levels could require estimated additional collateral postings or payments of approximately $198 million as of December 31, 2010. A ratings downgrade by A.M. Best to 'A-' for domestic life insurers would require Prudential Insurance to post a letter of credit of approximately $1.7 billion. Downgrades could also limit product marketing, increase policy surrenders, and raise borrowing costs.
What did the filing say about the impact of Dodd-Frank on the company?
Dodd-Frank subjects Prudential Financial to substantial additional federal regulation, including becoming a savings and loan holding company subject to Federal Reserve oversight and possible designation as a systemically significant company. The filing says the company cannot predict the outcome of the regulations, and that the Financial Crisis Responsibility Fee proposal could be substantial, though its amount is unclear.
06—Continue