01—Abstract
Summary
Summary of the 10-K filed February 14, 2020. Cited figures are marked; the original filing is the authoritative source.
Prudential Financial, Inc. (PRU) reported a 2019 annual report on Form 10-K filed February 14, 2020.
The company describes itself as a financial wellness leader and premier global investment manager with approximately $1.551 trilliona of assets under management as of December 31, 2019, operating across PGIM, U.S. Businesses (Workplace Solutions, Individual Solutions, and Assurance IQ), International Businesses, the Closed Block division, and Corporate and Other. Total revenues were $64.807 billion in 2019, up from $62.992 billion in 2018, while net income attributable to Prudential Financial was $4.186 billion, compared with $4.074 billion in 2018. Basic and diluted EPS were $10.23 and $10.11, respectively.
Total assets were $896.552 billionb at year-end. The year included the October 2019 acquisition of Assurance IQ, Inc., for $2.212 billion paid at closing plus contingent consideration of up to $1.2 billion payable in 2023 based on Variable Profits targets. The filing also discloses multi-year programs to accelerate margin growth, with implementation costs of approximately $400 million in 2019 and $365 million in the fourth quarter.
Adjusted operating income before income taxes was $6.098 billionc in 2019, versus $6.368 billion in 2018, with the decline driven by Corporate and Other losses and Individual Life. The company repurchased $2.5 billion of common stock and declared dividends of $4.00 per share for 2019. Investors should note the filing's disclosures on risk and legal matters.
These include a 2019 IRS memorandum challenging the company's Section 952 election for Brazil affiliates, class action securities suits filed in November 2019 and January 2020 alleging inadequate mortality reserves in Individual Life, and a Japanese low-interest-rate environment affecting reinvestment yields. Net realized investment losses were $459 milliond in 2019, reversing gains of $1.977 billion in 2018.
02—Key points
Key Highlights
- Total revenues rose to $64.807 billion in 2019 from $62.992 billion in 2018; net income attributable to Prudential Financial was $4.186 billion versus $4.074 billion.
- Adjusted operating income before income taxes was $6.098 billion in 2019, down from $6.368 billion in 2018, with Corporate and Other losses of $1.766 billion.
- Assurance IQ acquisition completed October 10, 2019, for $2.212 billion paid at closing plus up to $1.2 billion in contingent payments in 2023.
- Assets under management were approximately $1.551 trillion at December 31, 2019; PGIM AUM was $1.308 trillion.
- Share repurchases of $2.5 billion in 2019 and dividends declared of $4.00 per share; a $2.0 billion repurchase authorization was approved for 2020.
- Realized investment losses of $459 million in 2019 compared with realized gains of $1.977 billion in 2018, driven largely by derivative losses on variable annuity hedges.
- Multi-year margin improvement programs incurred approximately $400 million of implementation costs in 2019, including a Voluntary Separation Program charge.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 14, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $64.81B$62.99B | +2.9% |
| Operating Expenses | $5.80B$3.22B | +80.0% |
| Operating Income | $4.14B$4.01B | +3.1% |
| Interest Expense | $1.55B$1.42B | +9.2% |
| Net Income | $4.24B$4.09B | +3.7% |
| EPS (Basic) | $10.23$9.64 | +6.1% |
| EPS (Diluted) | $10.11$9.50 | +6.4% |
| Shares Outstanding (Basic) | 404.80M417.60M | −3.1% |
| Shares Outstanding (Diluted) | 410.90M426.20M | −3.6% |
05—Questions
Frequently Asked Questions
How did Prudential's 2019 earnings compare with 2018?
Net income attributable to Prudential Financial, Inc. was $4.186 billion in 2019, up from $4.074 billion in 2018. Basic EPS was $10.23 versus $9.64, and diluted EPS was $10.11 versus $9.50. Adjusted operating income before taxes declined to $6.098 billion from $6.368 billion.
What did Prudential acquire in 2019 and what did it cost?
Prudential completed the acquisition of Assurance IQ, Inc. on October 10, 2019. The purchase consideration included $2.212 billion paid at closing ($1.758 billion in cash and $454 million in restricted stock and equity awards), plus contingent consideration of up to $1.2 billion payable in 2023 based on Assurance IQ's Variable Profits from 2020 through 2022. Goodwill recognized was $2.128 billion.
What were the main risks the filing highlights for investors?
The filing highlights a low interest rate environment affecting reinvestment yields in the U.S. and Japan, variable annuity guarantee exposures, mortality experience in Individual Life, and a 2019 IRS legal memorandum that challenges the company's Brazil Section 952 election. It also discloses class action securities suits filed in late 2019 and January 2020 related to mortality reserve assumptions.
How much capital did Prudential return to shareholders in 2019?
Prudential repurchased $2.5 billion of common stock in 2019 and declared dividends of $4.00 per share, totaling $1.644 billion. In December 2019, the Board authorized up to $2.0 billion of repurchases for calendar year 2020.
What drove the decline in adjusted operating income in 2019?
The filing attributes the change partly to higher Corporate and Other losses of $1.766 billion versus $1.283 billion in 2018, including implementation costs for margin programs and higher capital debt interest expense. Individual Life adjusted operating income fell to $87 million from $223 million, reflecting unfavorable comparative impacts from annual assumption updates and mortality experience.
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