Ct Healthmarket via BizWire
08-05-2003, 01:20 PM
NEWARK, N.J.--(BUSINESS WIRE)--Aug. 5, 2003--Prudential Financial,
Inc. (NYSE:PRU) today reported net income for its Financial Services
Businesses of $127 million (25 cents per Common share) for the second
quarter of 2003, compared to $95 million (19 cents per Common share)
for the year-ago quarter. After-tax adjusted operating income for the
Financial Services Businesses was $358 million, or 67 cents per Common
share, for the second quarter of 2003, compared to $290 million, or 52
cents per Common share, for the second quarter of 2002. Pre-tax
adjusted operating income of the Financial Services Businesses was
$531 million in the second quarter of 2003, compared to $465 million
in the year-ago quarter. Adjusted operating income excludes net
realized investment gains and related charges and adjustments, results
from divested businesses, and discontinued operations.
For the first half of 2003, net income of the Financial Services
Businesses amounted to $324 million (63 cents per Common share)
compared to $358 million (65 cents per Common share) for the first
half of 2002. First half 2003 after-tax adjusted operating income of
the Financial Services Businesses amounted to $651 million ($1.22 per
Common share) compared to $606 million ($1.07 per Common share) for
the first half of 2002.
The company acquired American Skandia on May 1, 2003, and second
quarter 2003 results of the Financial Services Businesses include its
results from the date of acquisition. In May 2003, the company
announced its agreements to sell its principal property and casualty
insurance businesses. The expected losses on these sales and the
results of these businesses, other than retained overhead, are
included in divested businesses for all periods presented.
"Second quarter results demonstrate that we are making progress
toward our goals. We've strengthened our annuity business with the
acquisition of American Skandia, whose integration is on track. This
business is already making a significant contribution to our results
in line with our expectations. The agreements to sell our property and
casualty insurance businesses, expected to close by the end of the
year, are also milestones in our efforts to use our capital more
effectively. In the second quarter, our international operations again
produced solid results, while our domestic businesses benefited from
the strong equity markets in the quarter, as well as the actions we've
taken to reduce our cost structure. Our actions to improve
Prudential's efficiency are ongoing," said Chairman and CEO Arthur F.
Ryan.
"The combination of our retail securities brokerage business with
Wachovia Securities closed on July 1. Considering the impact we expect
from our recent transactions, including related charges of
approximately 25 cents per share in 2003 from the combination of the
retail securities brokerage operations, of which about 5 cents per
share has already been absorbed in second quarter results, we believe
that Prudential Financial will achieve Common Stock earnings per share
in the range of $2.25 to $2.40 for the year 2003, based on after-tax
adjusted operating income. The 2003 expectation assumes appreciation
in the S&P 500 index of 2% per quarter," Ryan said. This expectation
is subject to change if these assumptions are not realized and as
discussed under "Forward-Looking Statements" below.
Financial Services Businesses
Prudential Financial's Common Stock (NYSE:PRU) reflects the
performance of its Financial Services Businesses, which consist of its
Insurance, Investment, and International Insurance and Investments
divisions and its Corporate and Other operations.
Income (loss) from continuing operations before income taxes for
the second quarter of 2003 was $226 million for the Insurance
division, $95 million for the Investment division, $142 million for
the International Insurance and Investments division, and $(345)
million for Corporate and Other operations. For the year-ago quarter,
income (loss) from continuing operations before income taxes was $59
million for the Insurance division, $(32) million for the Investment
division, $148 million for the International Insurance and Investments
division, and $(24) million for Corporate and Other operations.
Presented below is a discussion of the results of our divisions,
based on a non-GAAP financial measure we call adjusted operating
income. As discussed below, we believe that the presentation of
adjusted operating income as we measure it for management purposes
enhances the understanding of the results of operations of the
Financial Services Businesses by highlighting the results from ongoing
operations and the underlying profitability of our businesses. The
schedules accompanying this release provide a reconciliation of
adjusted operating income for the Financial Services Businesses to
income from continuing operations in accordance with generally
accepted accounting principles.
In the following business-level discussion, adjusted operating
income refers to pre-tax results.
The Insurance division reported pre-tax adjusted operating income
of $236 million for the second quarter of 2003, an increase of $87
million from $149 million in the year-ago quarter. Our Individual Life
and Annuities segment reported adjusted operating income of $178
million for the current quarter, representing a $65 million increase
from the year-ago quarter, including a $43 million contribution from
the initial two months of operations of the American Skandia business
we acquired on May 1. The segment's individual life insurance business
reported adjusted operating income of $113 million in the current
quarter, compared to $130 million in the year-ago quarter. Current
quarter mortality experience was within our expected range but less
favorable than that of the strong year-ago quarter. The segment's
existing individual annuity business reported adjusted operating
income of $22 million in the current quarter, compared to a loss, on
an adjusted operating income basis, of $17 million in the year-ago
quarter which included a $48 million charge for additional
amortization of deferred policy acquisition costs to reflect our lower
estimate of profitability from annuities due to equity market
conditions at that time. Asset-based fees in the current quarter were
negatively affected by lower asset values in comparison to the
year-ago quarter. Our Group Insurance segment reported adjusted
operating income of $58 million in the current quarter, compared to
$36 million in the year-ago quarter. Current quarter results benefited
from unusually favorable group life mortality experience, reflecting
claims incidence at less than our expected level.
The Investment division reported pre-tax adjusted operating income
of $78 million in the second quarter of 2003, a decrease of $14
million from $92 million in the year-ago quarter. Our Financial
Advisory segment reported losses, on an adjusted operating income
basis, of $20 million for the current quarter and $6 million in the
year-ago quarter. The current quarter loss included a $37 million
retirement plan charge related to the combination of our retail
securities brokerage business with Wachovia Securities, which was
among the expected charges associated with this transaction. Absent
this charge, the Financial Advisory segment's operations resulted in
adjusted operating income of $17 million for the current quarter, as a
lower expense level reflecting our cost reduction measures more than
offset declines in individual investor transaction volume and asset
values on which our fees are based, in comparison to the year-ago
quarter. Adjusted operating income from our Retirement segment
amounted to $45 million for the current quarter, compared to $50
million in the year-ago quarter. The segment's guaranteed products
business benefited from income of $30 million from a mortgage
prepayment in the year-ago quarter, and by about half that amount from
investment market value changes and mortgage prepayments in the
current quarter. Adjusted operating income from the Investment
Management and Other Asset Management segments amounted to $53 million
in the current quarter, compared to $48 million in the year-ago
quarter.
The International Insurance and Investments division reported
pre-tax adjusted operating income for the second quarter of 2003 of
$217 million, an increase of $34 million from $183 million in the
year-ago quarter. The International Insurance segment reported
adjusted operating income of $207 million for the quarter, compared to
$187 million for the year-ago quarter. The segment's Gibraltar Life
operations reported adjusted operating income of $98 million for the
current quarter, compared to $101 million for the year-ago quarter.
Although Gibraltar Life's adjusted operating income for the year-ago
quarter reflected a net negative impact of about $20 million from
charges from refinements of estimates, primarily of amounts due
policyholders, and gains from policy surrenders, the net effect of
these items was largely offset by favorable benefits experience during
that quarter. Gibraltar Life's level of policyholder benefits and
expenses during the current quarter was within our expected range, but
less favorable than that of the year-ago quarter. Adjusted operating
income from our international insurance operations other than
Gibraltar Life was $109 million in the current quarter, an increase of
$23 million from the year-ago quarter, reflecting continued business
growth in Japan and Korea and a more favorable level of policy
benefits and expenses in the current quarter.
Corporate and Other operations reported break-even pre-tax
adjusted operating income results in the second quarter of 2003,
compared to pre-tax adjusted operating income of $41 million in the
year-ago quarter. The current quarter included costs of $37 million
related to a structured financing transaction we entered into before
our demutualization involving a future payment of a preferred stock
dividend that the company believes is probable.
Assets under management amounted to $422 billion at June 30, 2003,
compared to $368 billion a year earlier and $378 billion at December
31, 2002. During the second quarter of 2003, the American Skandia
acquisition added $22 billion of variable annuity assets and $4
billion of mutual fund assets.
Net income of the Financial Services Businesses for the second
quarter of 2003 amounted to $127 million, compared to $95 million in
the year-ago quarter. Current quarter net income included a loss from
divested businesses, before applicable taxes, of $402 million. The
current quarter loss from divested businesses includes a $455 million
pre-tax charge related to the company's agreements to sell its
National and New Jersey property and casualty insurance businesses and
represents the expected losses on those sales as well as certain
related employee termination costs. Current quarter net income also
included $11 million of net realized investment losses and related
charges and adjustments, and income of $13 million (net of related
taxes) from discontinued operations. The realized losses in the
current quarter included losses of $80 million from impairments and
sales of credit-impaired securities, which were largely offset by
realized gains from fixed maturities, including private bond
prepayments, and other investments. At June 30, 2003, gross unrealized
losses on fixed maturity investments of the Financial Services
Businesses amounted to $164 million.
The net income of the Financial Services Businesses for the
year-ago quarter included realized investment losses, net, and related
charges and adjustments, of $345 million, including losses of $254
million representing fluctuations in value of hedging instruments
covering our foreign currency and interest rate risks. Realized losses
in the year-ago quarter also included losses of $83 million on the
disposal of substantially all remaining WorldCom holdings, and $137
million of additional realized losses from impairments and sales of
credit-impaired securities, partially offset by realized gains from
fixed maturities. Net income for the year-ago quarter also included
income from divested businesses, before applicable taxes, of $31
million, primarily from operations of the National and New Jersey
property and casualty businesses.
Closed Block Business
Prudential's Class B Stock, which is not traded on any exchange,
reflects the performance of its Closed Block Business.
The Closed Block Business includes our in-force participating life
insurance and annuity policies, and assets that are being used for the
payment of benefits and policyholder dividends on these policies, as
well as other assets and equity that support these policies. We have
ceased offering these participating policies.
The Closed Block Business reported second quarter 2003 net income
of $69 million, compared to a net loss of $163 million for the
year-ago quarter.
The Closed Block Business reported income from operations before
income taxes of $108 million for the second quarter of 2003 and a loss
from operations before income taxes of $254 million for the year-ago
quarter. Closed Block Business results included net realized
investment gains of $114 million in the current quarter and realized
investment losses of $177 million in the year-ago quarter.
For the first half of 2003, the Closed Block Business reported net
income of $68 million, compared to a net loss of $273 million for the
first half of 2002.
The Closed Block Business reported income from operations before
income taxes of $107 million for the first half of 2003 and a loss
from operations before income taxes of $429 million for the first half
of 2002.
Consolidated Results
There is no legal separation of the Financial Services Businesses
and the Closed Block Business, and holders of the Common Stock and the
Class B Stock are both common stockholders of Prudential Financial,
Inc.
On a consolidated basis, which includes the results of both the
Financial Services Businesses and the Closed Block Business,
Prudential Financial, Inc. reported net income of $196 million for the
second quarter of 2003 and a net loss of $68 million for the year-ago
quarter, and reported net income of $392 million for the first half of
2003 and $85 million for the first half of 2002.
Share Repurchase Program
During the second quarter of 2003, the company acquired 7.4
million shares of its Common Stock, at a total cost of approximately
$238 million. From the commencement of share repurchases in May 2002,
through June 30, 2003, the company acquired 41.5 million shares of its
Common Stock at a total cost of approximately $1.288 billion. This
included 1.7 million shares repurchased and reissued directly to a
company deferred compensation plan during 2002.
Forward-Looking Statements
Certain of the statements included in this release, including (but
not limited to) those in the fifth paragraph hereof, constitute
forward-looking statements within the meaning of the U. S. Private
Securities Litigation Reform Act of 1995. Words such as "expects,"
"believes," "anticipates," "includes," "plans," "assumes,"
"estimates," "projects," "intends," or variations of such words are
generally part of forward-looking statements. Forward-looking
statements are made based on management's current expectations and
beliefs concerning future developments and their potential effects
upon Prudential Financial, Inc. and its subsidiaries. There can be no
assurance that future developments affecting Prudential Financial,
Inc. and its subsidiaries will be those anticipated by management.
These forward-looking statements are not a guarantee of future
performance and involve risks and uncertainties, and there are certain
important factors that could cause actual results to differ, possibly
materially, from expectations or estimates reflected in such
forward-looking statements, including without limitation: general
economic, market and political conditions, including the performance
of financial markets, interest rate fluctuations and the continuing
impact of the current economic environment; various domestic or
international military or terrorist activities or conflicts;
volatility in the securities markets; reestimates of our reserves for
future policy benefits and claims; changes in our assumptions related
to deferred policy acquisition costs; our exposure to contingent
liabilities; catastrophe losses; investment losses and defaults;
changes in our claims-paying or credit ratings; competition in our
product lines and for personnel; fluctuations in foreign currency
exchange rates and foreign securities markets; risks to our
international operations; the impact of changing regulation or
accounting practices; Prudential Financial, Inc.'s primary reliance,
as a holding company, on dividends from its subsidiaries to meet debt
payment obligations and the applicable regulatory restrictions on the
ability of the subsidiaries to pay such dividends; adverse litigation
results; and changes in tax law. Prudential Financial, Inc. does not
intend, and is under no obligation to, update any particular
forward-looking statement included in this document.
As indicated above, our expectation of earnings per Common share
is based on after-tax adjusted operating income. Adjusted operating
income, which is not measured in accordance with generally accepted
accounting principles (GAAP), excludes net realized investment gains
and losses. A significant element of realized losses is impairments
and losses from sales of credit-impaired securities, the timing of
which depends largely on market credit cycles and can vary
considerably across periods. The timing of other sales that would
result in gains or losses is largely subject to our discretion and
influenced by market opportunities. Trends in the underlying
profitability of our businesses can be more clearly identified without
the fluctuating effects of these transactions. Adjusted operating
income also excludes the results of divested businesses, which are not
relevant to our ongoing operations. Because we do not predict future
realized investment gains (losses), we cannot provide a measure of our
Common Stock earnings per share expectation based on income from
continuing operations of the Financial Services Businesses, which is
the GAAP measure most comparable to adjusted operating income.
The information referred to above, as well as the risks of our
businesses described in our Annual Report on Form 10-K for the year
ended December 31, 2002, should be considered by readers when
reviewing forward-looking statements contained in this release.
Earnings Conference Call
Members of Prudential's senior management will host a conference
call on Wednesday, August 6, 2003, at 11 a.m. ET, to discuss with the
investment community the company's second quarter results. The
conference call will be broadcast live over the company's Investor
Relations Web site at: http://www.investor.prudential.com. Please log
on fifteen minutes early in the event necessary software needs to be
downloaded. The call will remain on the Investor Relations Web site
for replay through August 20. Institutional investors, analysts, and
other members of the professional financial community are invited to
listen to the call and participate in Q&A by dialing (888) 428-4473
(domestic callers) or (651) 291-0561 (international callers). All
others are encouraged to dial into the conference call in listen-only
mode, using the same numbers. To listen to a replay of the conference
call starting at 4:15 p.m. on August 6, dial (800) 475-6701 (domestic
callers) or (320) 365-3844 (international callers). The access code
for the replay is 681465.
Prudential Financial companies serve individual and institutional
customers worldwide and include The Prudential Insurance Company of
America, one of the largest life insurance companies in the U.S. These
companies offer a variety of products and services, including life
insurance, property and casualty insurance, mutual funds, annuities,
pension and retirement related services and administration, asset
management, securities brokerage, banking and trust services, real
estate brokerage franchises and relocation services. For more
information, visit www.prudential.com.
Financial Highlights
(in millions, except per share data)
Three Six
Months Ended Months Ended
June 30 June 30
----------------- -----------------
2003 2002 2003 2002
-------- -------- -------- --------
Financial Services Businesses Income
Statement Data:
Adjusted Operating Income (1):
Revenues:
Premiums $ 1,983 $ 1,815 $ 3,998 $ 3,600
Policy charges and fee income 451 412 867 846
Net investment income 1,252 1,313 2,505 2,517
Commissions, investment
management fees, and other
income 1,066 1,031 1,965 2,106
-------- -------- -------- --------
Total revenues 4,752 4,571 9,335 9,069
-------- -------- -------- --------
Benefits and expenses:
Insurance and annuity
benefits 1,983 1,912 4,090 3,750
Interest credited to
policyholders' account
balances 421 415 839 829
Interest expense 37 43 74 91
Other expenses 1,780 1,736 3,367 3,431
-------- -------- -------- --------
Total benefits and
expenses 4,221 4,106 8,370 8,101
-------- -------- -------- --------
Adjusted operating income
before income taxes 531 465 965 968
Income taxes, applicable to
adjusted operating income 173 175 314 362
-------- -------- -------- --------
Financial Services Businesses after-
tax adjusted operating income (1) 358 290 651 606
-------- -------- -------- --------
Items excluded from adjusted
operating income:
Realized investment losses,
net, and related charges and
adjustments (11) (345) (124) (441)
Divested businesses (402) 31 (399) 49
-------- -------- -------- --------
Total items excluded from
adjusted operating income
before income taxes (413) (314) (523) (392)
Income taxes, applicable to
items excluded from adjusted
operating income (169) (122) (205) (151)
-------- -------- -------- --------
Total items excluded from
adjusted operating income,
after income taxes (244) (192) (318) (241)
-------- -------- -------- --------
Income from continuing operations
(after-tax) of Financial Services
Businesses 114 98 333 365
Income (loss) from discontinued
operations, net of taxes 13 (3) (9) (7)
-------- -------- -------- --------
Net income of Financial Services
Businesses $ 127 $ 95 $ 324 $ 358
======== ======== ======== ========
Direct equity adjustment for earnings
per share calculation (2) 8 14 26 21
-------- -------- -------- --------
Earnings available to holders of
Common Stock after direct equity
adjustment:
Based on net income $ 135 $ 109 $ 350 $ 379
======== ======== ======== ========
Based on after-tax adjusted
operating income $ 366 $ 304 $ 677 $ 627
======== ======== ======== ========
Earnings per share of Common Stock
(diluted) (2):
Financial Services Businesses
after-tax adjusted operating
income $ 0.67 $ 0.52 $ 1.22 $ 1.07
Items excluded from adjusted
operating income:
Realized investment losses,
net, and related charges and
adjustments (0.02) (0.59) (0.22) (0.75)
Divested businesses (0.73) 0.05 (0.72) 0.08
-------- -------- -------- --------
Total items excluded from adjusted
operating income, before income
taxes (0.75) (0.54) (0.94) (0.67)
Income taxes, applicable to
items excluded from adjusted
operating income (0.30) (0.21) (0.37) (0.26)
-------- -------- -------- --------
Total items excluded from adjusted
operating income, after income
taxes (0.45) (0.33) (0.57) (0.41)
-------- -------- -------- --------
Income from continuing operations
(after-tax) of Financial Services
Businesses 0.22 0.19 0.65 0.66
Income (loss) from discontinued
operations, net of taxes 0.03 - (0.02) (0.01)
-------- -------- -------- --------
Net income of Financial Services
Businesses $ 0.25 $ 0.19 $ 0.63 $ 0.65
======== ======== ======== ========
Weighted average number of
outstanding Common shares
(diluted basis) 549.4 585.2 552.9 585.2
======== ======== ======== ========
Financial Services Businesses
Attributed Equity (as of end
of period):
Total attributed equity $21,768 $20,258
Per share of Common Stock
- diluted 39.83 34.72
Attributed equity excluding
unrealized gains and
losses on investments $18,318 $19,144
Per share of Common Stock
- diluted 33.52 32.81
Number of diluted shares at
end of period 546.5 583.4
======== ========
See footnotes on page 4.
Financial Services Businesses Division Highlights
(in millions, except as otherwise noted)
Three Six
Months Ended Months Ended
June 30 June 30
----------------- -----------------
2003 2002 2003 2002
-------- -------- -------- --------
Adjusted operating income before income
taxes, by Division (1):
Insurance Division $ 236 $ 149 $ 399 $ 332
Investment Division 78 92 152 196
International Insurance and
Investments Division 217 183 395 387
Corporate and other operations - 41 19 53
-------- -------- -------- --------
Total Financial Services
Businesses adjusted
operating income before
income taxes 531 465 965 968
-------- -------- -------- --------
Items excluded from adjusted
operating income:
Realized investment gains
(losses), net, and related
charges and adjustments
Insurance Division (10) (90) (61) (111)
Investment Division 17 (124) (15) (93)
International Insurance and
Investments Division (75) (35) (108) (120)
Corporate and other
operations 57 (96) 60 (117)
-------- -------- -------- --------
Total (11) (345) (124) (441)
Divested businesses -
Corporate and other
operations (402) 31 (399) 49
-------- -------- -------- --------
Total items excluded from
adjusted operating income before
income taxes (413) (314) (523) (392)
-------- -------- -------- --------
Income from continuing operations
before income taxes - Financial
Services Businesses $ 118 $ 151 $ 442 $ 576
======== ======== ======== ========
Insurance Division:
Individual Life Insurance Sales
(3):
Excluding corporate-owned life
insurance
Variable life $ 26 $ 41 $ 51 $ 85
Universal life 23 16 49 27
Term life 25 15 48 28
-------- -------- -------- --------
Total excluding
corporate-owned life
insurance 74 72 148 140
Corporate-owned life insurance 14 76 18 86
-------- -------- -------- --------
Total $ 88 $ 148 $ 166 $ 226
======== ======== ======== ========
Fixed and Variable Annuity Sales
and Account Values:
Gross sales $ 1,127 $ 587 $ 1,568 $ 998
======== ======== ======== ========
Net sales (redemptions) $ 89 $ (85) $ 8 $ (321)
======== ======== ======== ========
Total account value at end
of period $43,278 $19,850
======== ========
Group Insurance New Annualized
Premiums (4):
Group life $ 35 $ 27 $ 123 $ 189
Group disability 29 33 96 86
-------- -------- -------- --------
Total $ 64 $ 60 $ 219 $ 275
======== ======== ======== ========
Investment Division:
Investment Management Segment:
Assets managed by Investment
Management and Advisory
Services (in billions,
as of end of period):
Retail customers $ 82.5 $ 84.8
Institutional customers 89.2 83.5
General account 127.1 116.0
-------- --------
Total Investment
Management and
Advisory Services $ 298.8 $ 284.3
======== ========
Mutual Funds and Wrap-Fee
Products Sales and Assets
Under Management:
Mutual Funds and Wrap-Fee
Products Sales:
Gross sales, other than
money market $ 2,562 $ 3,336 $ 4,935 $ 5,917
======== ======== ======== ========
Net sales (redemptions),
other than money market $ (141) $ 379 $ 92 $ 483
======== ======== ======== ========
Assets under management at
end of period:
Mutual funds $51,835 $52,459
Wrap-fee products 16,702 16,676
Other managed
accounts (5) 18,089 16,827
-------- --------
Total $86,626 $85,962
======== ========
Retirement Segment Sales:
Defined Contribution:
Gross sales $ 876 $ 904 $ 1,904 $ 1,914
======== ======== ======== ========
Net sales (withdrawals) $ (394) $ 149 $ (4) $ 342
======== ======== ======== ========
Guaranteed Products:
Gross sales $ 648 $ 506 $ 1,202 $ 765
======== ======== ======== ========
Net withdrawals $ (372) $ (487) $ (863) $(1,092)
======== ======== ======== ========
See footnotes on page 4.
Financial Services Businesses
Division Highlights
(in millions, except per share data
or as otherwise noted)
Three Six
Months Ended Months Ended
June 30 June 30
----------------- -----------------
2003 2002 2003 2002
-------- -------- -------- --------
International Insurance and
Investments Division:
International Insurance New
Annualized Premiums (6):
Actual exchange rate basis $ 220 $ 177 $ 440 $ 356
======== ======== ======== ========
Constant exchange rate
basis $ 210 $ 181 $ 422 $ 368
======== ======== ======== ========
Closed Block Business Data:
Income Statement Data:
Revenues $ 2,092 $ 1,826 $ 3,959 $ 3,603
Benefits and expenses 1,984 2,080 3,852 4,032
-------- -------- -------- --------
Income (loss) from
operations before income
taxes 108 (254) 107 (429)
Income taxes 39 (91) 39 (156)
-------- -------- -------- --------
Closed Block Business net income
(loss) $ 69 $ (163) $ 68 $ (273)
======== ======== ======== ========
Direct equity adjustment for
earnings per share calculation(2) (8) (14) (26) (21)
-------- -------- -------- --------
Earnings available to holders of
Class B Stock after direct equity
adjustment $ 61 $ (177) $ 42 $ (294)
======== ======== ======== ========
Net income (loss) per share of
Class B Stock $ 30.50 $(88.50) $ 21.00 $(147.00)
======== ======== ======== ========
Weighted average diluted shares
outstanding during period 2.0 2.0 2.0 2.0
======== ======== ======== ========
Closed Block Business Attributed
Equity (as of end of period):
Total attributed equity $ 929 $ 843
Per Share of Class B
Stock 464.50 421.50
Attributed equity excluding
unrealized gains and losses
on investments $ 151 $ 222
Per Share of Class B Stock 75.50 111.00
Number of Class B Shares at end of
period 2.0 2.0
======== ========
Consolidated Data:
Consolidated Income Statement
Data:
Revenues $ 7,324 $ 6,564 $14,131 $13,179
Benefits and expenses 7,098 6,667 13,582 13,032
-------- -------- -------- --------
Income (loss) from operations
before income taxes 226 (103) 549 147
Income taxes 43 (38) 148 55
-------- -------- -------- --------
Income (loss) from continuing
operations 183 (65) 401 92
Income (loss) from discontinued
operations, net of taxes 13 (3) (9) (7)
-------- -------- -------- --------
Consolidated net income
(loss) $ 196 $ (68) $ 392 $ 85
======== ======== ======== ========
Net income:
Financial Services Businesses $ 127 $ 95 $ 324 $ 358
Closed Block Business 69 (163) 68 (273)
-------- -------- -------- --------
Consolidated net income
(loss) $ 196 $ (68) $ 392 $ 85
======== ======== ======== ========
Assets and Asset Management
Information (in billions, as of
end of period)
Total assets $ 336.6 $ 297.7
Assets under management (at
fair market value):
Managed by Investment
Division:
Investment Management
Segment - Investment
Management and
Advisory Services $ 298.8 $ 284.3
Non-proprietary
wrap-fee products
and other assets
under management 40.7 38.2
-------- --------
Total Managed by
Investment Division 339.5 322.5
Managed by International
Insurance and Investments
Division 50.0 37.9
Managed by Insurance
Division 32.9 8.0
-------- --------
Total assets under
management 422.4 368.4
Client assets under
administration (7) 186.5 188.4
-------- --------
Total assets under
management and
administration $ 608.9 $ 556.8
======== ========
See footnotes on page 4.
(1) Adjusted operating income is a non-GAAP measure that excludes
realized investment gains, net of losses, and related charges and
adjustments; and results of divested businesses and discontinued
operations; and the related tax effects thereof. Revenues and
benefits and expenses shown as components of adjusted operating
income, and for the divisions of the Financial Services
Businesses, are presented on the same basis as pre-tax adjusted
operating income and exclude these items as well. Adjusted
operating income should not be viewed as a substitute for net
income determined in accordance with GAAP, and our definition of
adjusted operating income may differ from that used by other
companies. The excluded items are important to an understanding of
our overall results of operations. However, we believe that the
presentation of adjusted operating income as we measure it for
management purposes enhances the understanding of our results of
operations by highlighting the results from ongoing operations and
the underlying profitability factors of our businesses.
(2) Net income for the Financial Services Businesses and the Closed
Block Business is determined in accordance with GAAP and includes
general and administrative expenses charged to each of the
businesses based on the Company's methodology for allocation of
such expenses. Cash flows between the Financial Services
Businesses and the Closed Block Business related to administrative
expenses are determined by a policy servicing fee arrangement that
is based upon insurance and policies in force and statutory cash
premiums. To the extent reported administrative expenses vary from
these cash flow amounts, the differences are recorded, on an
after-tax basis, as direct equity adjustments to the equity
balances of each business. The direct equity adjustments modify
earnings available to holders of Common Stock and Class B Stock
for earnings per share purposes. Earnings per share of Common
Stock based on adjusted operating income of the Financial Services
Businesses reflects these adjustments as well.
(3) Statutory first year premiums and deposits.
(4) Amounts exclude new premiums resulting from rate changes on
existing policies, from additional coverage issued under our
Servicemembers' Group Life Insurance contract, and from excess
premiums on group universal life insurance that build cash value
but do not purchase face amounts.
(5) All of these assets are associated with businesses that were
combined into Wachovia Securities, LLC effective July 1, 2003.
Prudential Financial, Inc. owns a 38% interest in Wachovia
Securities, LLC. As a result, Prudential Financial, Inc. will no
longer report these assets as a component of its mutual fund and
wrap-fee assets under management for periods after June 30,
2003.
(6) Annualized new business premiums. Actual amounts reflect the
impact of currency fluctuations. Constant exchange rates amounts
are based on the average exchange rates for the year ended
December 31, 2002.
(7) Assets under administration at June 30, 2003 include approximately
$155 billion associated with businesses that were combined into
Wachovia Securities, LLC effective July 1, 2003. As a result,
Prudential Financial, Inc. will no longer report these assets as a
component of its assets under management and administration, for
periods after June 30, 2003.
Inc. (NYSE:PRU) today reported net income for its Financial Services
Businesses of $127 million (25 cents per Common share) for the second
quarter of 2003, compared to $95 million (19 cents per Common share)
for the year-ago quarter. After-tax adjusted operating income for the
Financial Services Businesses was $358 million, or 67 cents per Common
share, for the second quarter of 2003, compared to $290 million, or 52
cents per Common share, for the second quarter of 2002. Pre-tax
adjusted operating income of the Financial Services Businesses was
$531 million in the second quarter of 2003, compared to $465 million
in the year-ago quarter. Adjusted operating income excludes net
realized investment gains and related charges and adjustments, results
from divested businesses, and discontinued operations.
For the first half of 2003, net income of the Financial Services
Businesses amounted to $324 million (63 cents per Common share)
compared to $358 million (65 cents per Common share) for the first
half of 2002. First half 2003 after-tax adjusted operating income of
the Financial Services Businesses amounted to $651 million ($1.22 per
Common share) compared to $606 million ($1.07 per Common share) for
the first half of 2002.
The company acquired American Skandia on May 1, 2003, and second
quarter 2003 results of the Financial Services Businesses include its
results from the date of acquisition. In May 2003, the company
announced its agreements to sell its principal property and casualty
insurance businesses. The expected losses on these sales and the
results of these businesses, other than retained overhead, are
included in divested businesses for all periods presented.
"Second quarter results demonstrate that we are making progress
toward our goals. We've strengthened our annuity business with the
acquisition of American Skandia, whose integration is on track. This
business is already making a significant contribution to our results
in line with our expectations. The agreements to sell our property and
casualty insurance businesses, expected to close by the end of the
year, are also milestones in our efforts to use our capital more
effectively. In the second quarter, our international operations again
produced solid results, while our domestic businesses benefited from
the strong equity markets in the quarter, as well as the actions we've
taken to reduce our cost structure. Our actions to improve
Prudential's efficiency are ongoing," said Chairman and CEO Arthur F.
Ryan.
"The combination of our retail securities brokerage business with
Wachovia Securities closed on July 1. Considering the impact we expect
from our recent transactions, including related charges of
approximately 25 cents per share in 2003 from the combination of the
retail securities brokerage operations, of which about 5 cents per
share has already been absorbed in second quarter results, we believe
that Prudential Financial will achieve Common Stock earnings per share
in the range of $2.25 to $2.40 for the year 2003, based on after-tax
adjusted operating income. The 2003 expectation assumes appreciation
in the S&P 500 index of 2% per quarter," Ryan said. This expectation
is subject to change if these assumptions are not realized and as
discussed under "Forward-Looking Statements" below.
Financial Services Businesses
Prudential Financial's Common Stock (NYSE:PRU) reflects the
performance of its Financial Services Businesses, which consist of its
Insurance, Investment, and International Insurance and Investments
divisions and its Corporate and Other operations.
Income (loss) from continuing operations before income taxes for
the second quarter of 2003 was $226 million for the Insurance
division, $95 million for the Investment division, $142 million for
the International Insurance and Investments division, and $(345)
million for Corporate and Other operations. For the year-ago quarter,
income (loss) from continuing operations before income taxes was $59
million for the Insurance division, $(32) million for the Investment
division, $148 million for the International Insurance and Investments
division, and $(24) million for Corporate and Other operations.
Presented below is a discussion of the results of our divisions,
based on a non-GAAP financial measure we call adjusted operating
income. As discussed below, we believe that the presentation of
adjusted operating income as we measure it for management purposes
enhances the understanding of the results of operations of the
Financial Services Businesses by highlighting the results from ongoing
operations and the underlying profitability of our businesses. The
schedules accompanying this release provide a reconciliation of
adjusted operating income for the Financial Services Businesses to
income from continuing operations in accordance with generally
accepted accounting principles.
In the following business-level discussion, adjusted operating
income refers to pre-tax results.
The Insurance division reported pre-tax adjusted operating income
of $236 million for the second quarter of 2003, an increase of $87
million from $149 million in the year-ago quarter. Our Individual Life
and Annuities segment reported adjusted operating income of $178
million for the current quarter, representing a $65 million increase
from the year-ago quarter, including a $43 million contribution from
the initial two months of operations of the American Skandia business
we acquired on May 1. The segment's individual life insurance business
reported adjusted operating income of $113 million in the current
quarter, compared to $130 million in the year-ago quarter. Current
quarter mortality experience was within our expected range but less
favorable than that of the strong year-ago quarter. The segment's
existing individual annuity business reported adjusted operating
income of $22 million in the current quarter, compared to a loss, on
an adjusted operating income basis, of $17 million in the year-ago
quarter which included a $48 million charge for additional
amortization of deferred policy acquisition costs to reflect our lower
estimate of profitability from annuities due to equity market
conditions at that time. Asset-based fees in the current quarter were
negatively affected by lower asset values in comparison to the
year-ago quarter. Our Group Insurance segment reported adjusted
operating income of $58 million in the current quarter, compared to
$36 million in the year-ago quarter. Current quarter results benefited
from unusually favorable group life mortality experience, reflecting
claims incidence at less than our expected level.
The Investment division reported pre-tax adjusted operating income
of $78 million in the second quarter of 2003, a decrease of $14
million from $92 million in the year-ago quarter. Our Financial
Advisory segment reported losses, on an adjusted operating income
basis, of $20 million for the current quarter and $6 million in the
year-ago quarter. The current quarter loss included a $37 million
retirement plan charge related to the combination of our retail
securities brokerage business with Wachovia Securities, which was
among the expected charges associated with this transaction. Absent
this charge, the Financial Advisory segment's operations resulted in
adjusted operating income of $17 million for the current quarter, as a
lower expense level reflecting our cost reduction measures more than
offset declines in individual investor transaction volume and asset
values on which our fees are based, in comparison to the year-ago
quarter. Adjusted operating income from our Retirement segment
amounted to $45 million for the current quarter, compared to $50
million in the year-ago quarter. The segment's guaranteed products
business benefited from income of $30 million from a mortgage
prepayment in the year-ago quarter, and by about half that amount from
investment market value changes and mortgage prepayments in the
current quarter. Adjusted operating income from the Investment
Management and Other Asset Management segments amounted to $53 million
in the current quarter, compared to $48 million in the year-ago
quarter.
The International Insurance and Investments division reported
pre-tax adjusted operating income for the second quarter of 2003 of
$217 million, an increase of $34 million from $183 million in the
year-ago quarter. The International Insurance segment reported
adjusted operating income of $207 million for the quarter, compared to
$187 million for the year-ago quarter. The segment's Gibraltar Life
operations reported adjusted operating income of $98 million for the
current quarter, compared to $101 million for the year-ago quarter.
Although Gibraltar Life's adjusted operating income for the year-ago
quarter reflected a net negative impact of about $20 million from
charges from refinements of estimates, primarily of amounts due
policyholders, and gains from policy surrenders, the net effect of
these items was largely offset by favorable benefits experience during
that quarter. Gibraltar Life's level of policyholder benefits and
expenses during the current quarter was within our expected range, but
less favorable than that of the year-ago quarter. Adjusted operating
income from our international insurance operations other than
Gibraltar Life was $109 million in the current quarter, an increase of
$23 million from the year-ago quarter, reflecting continued business
growth in Japan and Korea and a more favorable level of policy
benefits and expenses in the current quarter.
Corporate and Other operations reported break-even pre-tax
adjusted operating income results in the second quarter of 2003,
compared to pre-tax adjusted operating income of $41 million in the
year-ago quarter. The current quarter included costs of $37 million
related to a structured financing transaction we entered into before
our demutualization involving a future payment of a preferred stock
dividend that the company believes is probable.
Assets under management amounted to $422 billion at June 30, 2003,
compared to $368 billion a year earlier and $378 billion at December
31, 2002. During the second quarter of 2003, the American Skandia
acquisition added $22 billion of variable annuity assets and $4
billion of mutual fund assets.
Net income of the Financial Services Businesses for the second
quarter of 2003 amounted to $127 million, compared to $95 million in
the year-ago quarter. Current quarter net income included a loss from
divested businesses, before applicable taxes, of $402 million. The
current quarter loss from divested businesses includes a $455 million
pre-tax charge related to the company's agreements to sell its
National and New Jersey property and casualty insurance businesses and
represents the expected losses on those sales as well as certain
related employee termination costs. Current quarter net income also
included $11 million of net realized investment losses and related
charges and adjustments, and income of $13 million (net of related
taxes) from discontinued operations. The realized losses in the
current quarter included losses of $80 million from impairments and
sales of credit-impaired securities, which were largely offset by
realized gains from fixed maturities, including private bond
prepayments, and other investments. At June 30, 2003, gross unrealized
losses on fixed maturity investments of the Financial Services
Businesses amounted to $164 million.
The net income of the Financial Services Businesses for the
year-ago quarter included realized investment losses, net, and related
charges and adjustments, of $345 million, including losses of $254
million representing fluctuations in value of hedging instruments
covering our foreign currency and interest rate risks. Realized losses
in the year-ago quarter also included losses of $83 million on the
disposal of substantially all remaining WorldCom holdings, and $137
million of additional realized losses from impairments and sales of
credit-impaired securities, partially offset by realized gains from
fixed maturities. Net income for the year-ago quarter also included
income from divested businesses, before applicable taxes, of $31
million, primarily from operations of the National and New Jersey
property and casualty businesses.
Closed Block Business
Prudential's Class B Stock, which is not traded on any exchange,
reflects the performance of its Closed Block Business.
The Closed Block Business includes our in-force participating life
insurance and annuity policies, and assets that are being used for the
payment of benefits and policyholder dividends on these policies, as
well as other assets and equity that support these policies. We have
ceased offering these participating policies.
The Closed Block Business reported second quarter 2003 net income
of $69 million, compared to a net loss of $163 million for the
year-ago quarter.
The Closed Block Business reported income from operations before
income taxes of $108 million for the second quarter of 2003 and a loss
from operations before income taxes of $254 million for the year-ago
quarter. Closed Block Business results included net realized
investment gains of $114 million in the current quarter and realized
investment losses of $177 million in the year-ago quarter.
For the first half of 2003, the Closed Block Business reported net
income of $68 million, compared to a net loss of $273 million for the
first half of 2002.
The Closed Block Business reported income from operations before
income taxes of $107 million for the first half of 2003 and a loss
from operations before income taxes of $429 million for the first half
of 2002.
Consolidated Results
There is no legal separation of the Financial Services Businesses
and the Closed Block Business, and holders of the Common Stock and the
Class B Stock are both common stockholders of Prudential Financial,
Inc.
On a consolidated basis, which includes the results of both the
Financial Services Businesses and the Closed Block Business,
Prudential Financial, Inc. reported net income of $196 million for the
second quarter of 2003 and a net loss of $68 million for the year-ago
quarter, and reported net income of $392 million for the first half of
2003 and $85 million for the first half of 2002.
Share Repurchase Program
During the second quarter of 2003, the company acquired 7.4
million shares of its Common Stock, at a total cost of approximately
$238 million. From the commencement of share repurchases in May 2002,
through June 30, 2003, the company acquired 41.5 million shares of its
Common Stock at a total cost of approximately $1.288 billion. This
included 1.7 million shares repurchased and reissued directly to a
company deferred compensation plan during 2002.
Forward-Looking Statements
Certain of the statements included in this release, including (but
not limited to) those in the fifth paragraph hereof, constitute
forward-looking statements within the meaning of the U. S. Private
Securities Litigation Reform Act of 1995. Words such as "expects,"
"believes," "anticipates," "includes," "plans," "assumes,"
"estimates," "projects," "intends," or variations of such words are
generally part of forward-looking statements. Forward-looking
statements are made based on management's current expectations and
beliefs concerning future developments and their potential effects
upon Prudential Financial, Inc. and its subsidiaries. There can be no
assurance that future developments affecting Prudential Financial,
Inc. and its subsidiaries will be those anticipated by management.
These forward-looking statements are not a guarantee of future
performance and involve risks and uncertainties, and there are certain
important factors that could cause actual results to differ, possibly
materially, from expectations or estimates reflected in such
forward-looking statements, including without limitation: general
economic, market and political conditions, including the performance
of financial markets, interest rate fluctuations and the continuing
impact of the current economic environment; various domestic or
international military or terrorist activities or conflicts;
volatility in the securities markets; reestimates of our reserves for
future policy benefits and claims; changes in our assumptions related
to deferred policy acquisition costs; our exposure to contingent
liabilities; catastrophe losses; investment losses and defaults;
changes in our claims-paying or credit ratings; competition in our
product lines and for personnel; fluctuations in foreign currency
exchange rates and foreign securities markets; risks to our
international operations; the impact of changing regulation or
accounting practices; Prudential Financial, Inc.'s primary reliance,
as a holding company, on dividends from its subsidiaries to meet debt
payment obligations and the applicable regulatory restrictions on the
ability of the subsidiaries to pay such dividends; adverse litigation
results; and changes in tax law. Prudential Financial, Inc. does not
intend, and is under no obligation to, update any particular
forward-looking statement included in this document.
As indicated above, our expectation of earnings per Common share
is based on after-tax adjusted operating income. Adjusted operating
income, which is not measured in accordance with generally accepted
accounting principles (GAAP), excludes net realized investment gains
and losses. A significant element of realized losses is impairments
and losses from sales of credit-impaired securities, the timing of
which depends largely on market credit cycles and can vary
considerably across periods. The timing of other sales that would
result in gains or losses is largely subject to our discretion and
influenced by market opportunities. Trends in the underlying
profitability of our businesses can be more clearly identified without
the fluctuating effects of these transactions. Adjusted operating
income also excludes the results of divested businesses, which are not
relevant to our ongoing operations. Because we do not predict future
realized investment gains (losses), we cannot provide a measure of our
Common Stock earnings per share expectation based on income from
continuing operations of the Financial Services Businesses, which is
the GAAP measure most comparable to adjusted operating income.
The information referred to above, as well as the risks of our
businesses described in our Annual Report on Form 10-K for the year
ended December 31, 2002, should be considered by readers when
reviewing forward-looking statements contained in this release.
Earnings Conference Call
Members of Prudential's senior management will host a conference
call on Wednesday, August 6, 2003, at 11 a.m. ET, to discuss with the
investment community the company's second quarter results. The
conference call will be broadcast live over the company's Investor
Relations Web site at: http://www.investor.prudential.com. Please log
on fifteen minutes early in the event necessary software needs to be
downloaded. The call will remain on the Investor Relations Web site
for replay through August 20. Institutional investors, analysts, and
other members of the professional financial community are invited to
listen to the call and participate in Q&A by dialing (888) 428-4473
(domestic callers) or (651) 291-0561 (international callers). All
others are encouraged to dial into the conference call in listen-only
mode, using the same numbers. To listen to a replay of the conference
call starting at 4:15 p.m. on August 6, dial (800) 475-6701 (domestic
callers) or (320) 365-3844 (international callers). The access code
for the replay is 681465.
Prudential Financial companies serve individual and institutional
customers worldwide and include The Prudential Insurance Company of
America, one of the largest life insurance companies in the U.S. These
companies offer a variety of products and services, including life
insurance, property and casualty insurance, mutual funds, annuities,
pension and retirement related services and administration, asset
management, securities brokerage, banking and trust services, real
estate brokerage franchises and relocation services. For more
information, visit www.prudential.com.
Financial Highlights
(in millions, except per share data)
Three Six
Months Ended Months Ended
June 30 June 30
----------------- -----------------
2003 2002 2003 2002
-------- -------- -------- --------
Financial Services Businesses Income
Statement Data:
Adjusted Operating Income (1):
Revenues:
Premiums $ 1,983 $ 1,815 $ 3,998 $ 3,600
Policy charges and fee income 451 412 867 846
Net investment income 1,252 1,313 2,505 2,517
Commissions, investment
management fees, and other
income 1,066 1,031 1,965 2,106
-------- -------- -------- --------
Total revenues 4,752 4,571 9,335 9,069
-------- -------- -------- --------
Benefits and expenses:
Insurance and annuity
benefits 1,983 1,912 4,090 3,750
Interest credited to
policyholders' account
balances 421 415 839 829
Interest expense 37 43 74 91
Other expenses 1,780 1,736 3,367 3,431
-------- -------- -------- --------
Total benefits and
expenses 4,221 4,106 8,370 8,101
-------- -------- -------- --------
Adjusted operating income
before income taxes 531 465 965 968
Income taxes, applicable to
adjusted operating income 173 175 314 362
-------- -------- -------- --------
Financial Services Businesses after-
tax adjusted operating income (1) 358 290 651 606
-------- -------- -------- --------
Items excluded from adjusted
operating income:
Realized investment losses,
net, and related charges and
adjustments (11) (345) (124) (441)
Divested businesses (402) 31 (399) 49
-------- -------- -------- --------
Total items excluded from
adjusted operating income
before income taxes (413) (314) (523) (392)
Income taxes, applicable to
items excluded from adjusted
operating income (169) (122) (205) (151)
-------- -------- -------- --------
Total items excluded from
adjusted operating income,
after income taxes (244) (192) (318) (241)
-------- -------- -------- --------
Income from continuing operations
(after-tax) of Financial Services
Businesses 114 98 333 365
Income (loss) from discontinued
operations, net of taxes 13 (3) (9) (7)
-------- -------- -------- --------
Net income of Financial Services
Businesses $ 127 $ 95 $ 324 $ 358
======== ======== ======== ========
Direct equity adjustment for earnings
per share calculation (2) 8 14 26 21
-------- -------- -------- --------
Earnings available to holders of
Common Stock after direct equity
adjustment:
Based on net income $ 135 $ 109 $ 350 $ 379
======== ======== ======== ========
Based on after-tax adjusted
operating income $ 366 $ 304 $ 677 $ 627
======== ======== ======== ========
Earnings per share of Common Stock
(diluted) (2):
Financial Services Businesses
after-tax adjusted operating
income $ 0.67 $ 0.52 $ 1.22 $ 1.07
Items excluded from adjusted
operating income:
Realized investment losses,
net, and related charges and
adjustments (0.02) (0.59) (0.22) (0.75)
Divested businesses (0.73) 0.05 (0.72) 0.08
-------- -------- -------- --------
Total items excluded from adjusted
operating income, before income
taxes (0.75) (0.54) (0.94) (0.67)
Income taxes, applicable to
items excluded from adjusted
operating income (0.30) (0.21) (0.37) (0.26)
-------- -------- -------- --------
Total items excluded from adjusted
operating income, after income
taxes (0.45) (0.33) (0.57) (0.41)
-------- -------- -------- --------
Income from continuing operations
(after-tax) of Financial Services
Businesses 0.22 0.19 0.65 0.66
Income (loss) from discontinued
operations, net of taxes 0.03 - (0.02) (0.01)
-------- -------- -------- --------
Net income of Financial Services
Businesses $ 0.25 $ 0.19 $ 0.63 $ 0.65
======== ======== ======== ========
Weighted average number of
outstanding Common shares
(diluted basis) 549.4 585.2 552.9 585.2
======== ======== ======== ========
Financial Services Businesses
Attributed Equity (as of end
of period):
Total attributed equity $21,768 $20,258
Per share of Common Stock
- diluted 39.83 34.72
Attributed equity excluding
unrealized gains and
losses on investments $18,318 $19,144
Per share of Common Stock
- diluted 33.52 32.81
Number of diluted shares at
end of period 546.5 583.4
======== ========
See footnotes on page 4.
Financial Services Businesses Division Highlights
(in millions, except as otherwise noted)
Three Six
Months Ended Months Ended
June 30 June 30
----------------- -----------------
2003 2002 2003 2002
-------- -------- -------- --------
Adjusted operating income before income
taxes, by Division (1):
Insurance Division $ 236 $ 149 $ 399 $ 332
Investment Division 78 92 152 196
International Insurance and
Investments Division 217 183 395 387
Corporate and other operations - 41 19 53
-------- -------- -------- --------
Total Financial Services
Businesses adjusted
operating income before
income taxes 531 465 965 968
-------- -------- -------- --------
Items excluded from adjusted
operating income:
Realized investment gains
(losses), net, and related
charges and adjustments
Insurance Division (10) (90) (61) (111)
Investment Division 17 (124) (15) (93)
International Insurance and
Investments Division (75) (35) (108) (120)
Corporate and other
operations 57 (96) 60 (117)
-------- -------- -------- --------
Total (11) (345) (124) (441)
Divested businesses -
Corporate and other
operations (402) 31 (399) 49
-------- -------- -------- --------
Total items excluded from
adjusted operating income before
income taxes (413) (314) (523) (392)
-------- -------- -------- --------
Income from continuing operations
before income taxes - Financial
Services Businesses $ 118 $ 151 $ 442 $ 576
======== ======== ======== ========
Insurance Division:
Individual Life Insurance Sales
(3):
Excluding corporate-owned life
insurance
Variable life $ 26 $ 41 $ 51 $ 85
Universal life 23 16 49 27
Term life 25 15 48 28
-------- -------- -------- --------
Total excluding
corporate-owned life
insurance 74 72 148 140
Corporate-owned life insurance 14 76 18 86
-------- -------- -------- --------
Total $ 88 $ 148 $ 166 $ 226
======== ======== ======== ========
Fixed and Variable Annuity Sales
and Account Values:
Gross sales $ 1,127 $ 587 $ 1,568 $ 998
======== ======== ======== ========
Net sales (redemptions) $ 89 $ (85) $ 8 $ (321)
======== ======== ======== ========
Total account value at end
of period $43,278 $19,850
======== ========
Group Insurance New Annualized
Premiums (4):
Group life $ 35 $ 27 $ 123 $ 189
Group disability 29 33 96 86
-------- -------- -------- --------
Total $ 64 $ 60 $ 219 $ 275
======== ======== ======== ========
Investment Division:
Investment Management Segment:
Assets managed by Investment
Management and Advisory
Services (in billions,
as of end of period):
Retail customers $ 82.5 $ 84.8
Institutional customers 89.2 83.5
General account 127.1 116.0
-------- --------
Total Investment
Management and
Advisory Services $ 298.8 $ 284.3
======== ========
Mutual Funds and Wrap-Fee
Products Sales and Assets
Under Management:
Mutual Funds and Wrap-Fee
Products Sales:
Gross sales, other than
money market $ 2,562 $ 3,336 $ 4,935 $ 5,917
======== ======== ======== ========
Net sales (redemptions),
other than money market $ (141) $ 379 $ 92 $ 483
======== ======== ======== ========
Assets under management at
end of period:
Mutual funds $51,835 $52,459
Wrap-fee products 16,702 16,676
Other managed
accounts (5) 18,089 16,827
-------- --------
Total $86,626 $85,962
======== ========
Retirement Segment Sales:
Defined Contribution:
Gross sales $ 876 $ 904 $ 1,904 $ 1,914
======== ======== ======== ========
Net sales (withdrawals) $ (394) $ 149 $ (4) $ 342
======== ======== ======== ========
Guaranteed Products:
Gross sales $ 648 $ 506 $ 1,202 $ 765
======== ======== ======== ========
Net withdrawals $ (372) $ (487) $ (863) $(1,092)
======== ======== ======== ========
See footnotes on page 4.
Financial Services Businesses
Division Highlights
(in millions, except per share data
or as otherwise noted)
Three Six
Months Ended Months Ended
June 30 June 30
----------------- -----------------
2003 2002 2003 2002
-------- -------- -------- --------
International Insurance and
Investments Division:
International Insurance New
Annualized Premiums (6):
Actual exchange rate basis $ 220 $ 177 $ 440 $ 356
======== ======== ======== ========
Constant exchange rate
basis $ 210 $ 181 $ 422 $ 368
======== ======== ======== ========
Closed Block Business Data:
Income Statement Data:
Revenues $ 2,092 $ 1,826 $ 3,959 $ 3,603
Benefits and expenses 1,984 2,080 3,852 4,032
-------- -------- -------- --------
Income (loss) from
operations before income
taxes 108 (254) 107 (429)
Income taxes 39 (91) 39 (156)
-------- -------- -------- --------
Closed Block Business net income
(loss) $ 69 $ (163) $ 68 $ (273)
======== ======== ======== ========
Direct equity adjustment for
earnings per share calculation(2) (8) (14) (26) (21)
-------- -------- -------- --------
Earnings available to holders of
Class B Stock after direct equity
adjustment $ 61 $ (177) $ 42 $ (294)
======== ======== ======== ========
Net income (loss) per share of
Class B Stock $ 30.50 $(88.50) $ 21.00 $(147.00)
======== ======== ======== ========
Weighted average diluted shares
outstanding during period 2.0 2.0 2.0 2.0
======== ======== ======== ========
Closed Block Business Attributed
Equity (as of end of period):
Total attributed equity $ 929 $ 843
Per Share of Class B
Stock 464.50 421.50
Attributed equity excluding
unrealized gains and losses
on investments $ 151 $ 222
Per Share of Class B Stock 75.50 111.00
Number of Class B Shares at end of
period 2.0 2.0
======== ========
Consolidated Data:
Consolidated Income Statement
Data:
Revenues $ 7,324 $ 6,564 $14,131 $13,179
Benefits and expenses 7,098 6,667 13,582 13,032
-------- -------- -------- --------
Income (loss) from operations
before income taxes 226 (103) 549 147
Income taxes 43 (38) 148 55
-------- -------- -------- --------
Income (loss) from continuing
operations 183 (65) 401 92
Income (loss) from discontinued
operations, net of taxes 13 (3) (9) (7)
-------- -------- -------- --------
Consolidated net income
(loss) $ 196 $ (68) $ 392 $ 85
======== ======== ======== ========
Net income:
Financial Services Businesses $ 127 $ 95 $ 324 $ 358
Closed Block Business 69 (163) 68 (273)
-------- -------- -------- --------
Consolidated net income
(loss) $ 196 $ (68) $ 392 $ 85
======== ======== ======== ========
Assets and Asset Management
Information (in billions, as of
end of period)
Total assets $ 336.6 $ 297.7
Assets under management (at
fair market value):
Managed by Investment
Division:
Investment Management
Segment - Investment
Management and
Advisory Services $ 298.8 $ 284.3
Non-proprietary
wrap-fee products
and other assets
under management 40.7 38.2
-------- --------
Total Managed by
Investment Division 339.5 322.5
Managed by International
Insurance and Investments
Division 50.0 37.9
Managed by Insurance
Division 32.9 8.0
-------- --------
Total assets under
management 422.4 368.4
Client assets under
administration (7) 186.5 188.4
-------- --------
Total assets under
management and
administration $ 608.9 $ 556.8
======== ========
See footnotes on page 4.
(1) Adjusted operating income is a non-GAAP measure that excludes
realized investment gains, net of losses, and related charges and
adjustments; and results of divested businesses and discontinued
operations; and the related tax effects thereof. Revenues and
benefits and expenses shown as components of adjusted operating
income, and for the divisions of the Financial Services
Businesses, are presented on the same basis as pre-tax adjusted
operating income and exclude these items as well. Adjusted
operating income should not be viewed as a substitute for net
income determined in accordance with GAAP, and our definition of
adjusted operating income may differ from that used by other
companies. The excluded items are important to an understanding of
our overall results of operations. However, we believe that the
presentation of adjusted operating income as we measure it for
management purposes enhances the understanding of our results of
operations by highlighting the results from ongoing operations and
the underlying profitability factors of our businesses.
(2) Net income for the Financial Services Businesses and the Closed
Block Business is determined in accordance with GAAP and includes
general and administrative expenses charged to each of the
businesses based on the Company's methodology for allocation of
such expenses. Cash flows between the Financial Services
Businesses and the Closed Block Business related to administrative
expenses are determined by a policy servicing fee arrangement that
is based upon insurance and policies in force and statutory cash
premiums. To the extent reported administrative expenses vary from
these cash flow amounts, the differences are recorded, on an
after-tax basis, as direct equity adjustments to the equity
balances of each business. The direct equity adjustments modify
earnings available to holders of Common Stock and Class B Stock
for earnings per share purposes. Earnings per share of Common
Stock based on adjusted operating income of the Financial Services
Businesses reflects these adjustments as well.
(3) Statutory first year premiums and deposits.
(4) Amounts exclude new premiums resulting from rate changes on
existing policies, from additional coverage issued under our
Servicemembers' Group Life Insurance contract, and from excess
premiums on group universal life insurance that build cash value
but do not purchase face amounts.
(5) All of these assets are associated with businesses that were
combined into Wachovia Securities, LLC effective July 1, 2003.
Prudential Financial, Inc. owns a 38% interest in Wachovia
Securities, LLC. As a result, Prudential Financial, Inc. will no
longer report these assets as a component of its mutual fund and
wrap-fee assets under management for periods after June 30,
2003.
(6) Annualized new business premiums. Actual amounts reflect the
impact of currency fluctuations. Constant exchange rates amounts
are based on the average exchange rates for the year ended
December 31, 2002.
(7) Assets under administration at June 30, 2003 include approximately
$155 billion associated with businesses that were combined into
Wachovia Securities, LLC effective July 1, 2003. As a result,
Prudential Financial, Inc. will no longer report these assets as a
component of its assets under management and administration, for
periods after June 30, 2003.
