Prudential 2002 Annual Report Download - page 3

Prudential Financial 2002 Annual Report 1
We delivered solid financial results for our shareholders
in 2002. Our Financial Services Businesses earned
$1.78 billion on a before-tax adjusted operating
income basis—a financial measure that we use to
analyze our operating performance—a 32 percent
increase over 2001, and our earnings per share of
Common Stock were up 49 percent. On a generally
accepted accounting principles (GAAP) basis, our
Financial Services Businesses had before-tax
income from continuing operations of $821 million,
a 72 percent increase over the prior year, and our
net income per share of Common Stock more
than doubled.
We not only ended the year ahead of where we
were at year-end 2001, we also met our 2002 earnings
guidance, which we set at the beginning of the year.
While the Dow Jones Industrial Average fell
17 percent, the S&P 500 Index dropped 23 percent
and the Nasdaq Composite declined 32 percent, the price
of Prudential Financial’s Common Stock significantly
outperformed the market. Equally meaningful is the
fact that our stock outperformed the vast majority of
the insurance and financial services companies against
which we are typically measured.
We proved we can compete in the public arena.
Succeeding in a difficult environment
Even more significant than the numbers themselves is
the environment in which we were able to achieve
them. We faced sluggish economies around the globe,
a third consecutive down year for the U.S. stock
market, continuing military conflict, and an onslaught
of corporate accounting and other financial scandals
that tested investor confidence.
Yet these challenges did not distract us. We continued
to deliver on our strategy of helping clients grow
and protect wealth by providing them with the advice
and information they seek, and the insurance and
investment products and services they want.
Effectively managing expenses and maintaining a
strong capital position helped us not just weather the
storm but operate successfully in a difficult environment.
Our vigilance in the area of expense management
paid off. We pledged to reduce operating expenses by
$250 million in 2002 and we more than delivered. In
our three operating divisions, we achieved total
expense savings of more than $300 million.
We are in a superior position in terms of our
balance sheet and capital strength. When you combine
our unused borrowing capacity with our strong
current cash position, we are confident in our ability to
put capital back to work in our existing businesses,
while making tactical acquisitions and continuing our
share repurchase program.
Buying back stock is an important part of our
overall capital management strategy. We launched
share repurchases in May 2002, and by the end of the
year we had bought back 26 million shares of
Common Stock at a total cost of $800 million.
Our superior capital strength helped us maintain
our credit ratings over the course of the year. In fact,
Standard & Poor’s changed its outlook on Prudential
Insurance from stable to positive—in the midst of a
very difficult operating environment.
Streamlining our organization
During the third quarter of 2002, we streamlined our
organizational structure to further improve our
operating effectiveness and enhance revenue
growth. We reduced our operating divisions from
four to three: the Insurance Division, which consists
of our Individual Life and Annuities, Group Insurance,
and Property and Casualty Insurance segments; the
Investment Division, which encompasses our
Investment Management, Financial Advisory,
Retirement and Other Asset Management segments;
and the International Insurance and Investments
Division.
At the same time, we established an Office of the
Chairman, consisting of the heads of our business
divisions: Vivian Banta of the Insurance Division, John
Strangfeld of the Investment Division, Rodger Lawson
of the International Insurance and Investments
Division, and Mark Grier, who is in charge of our
financial management operations. As part of this
reorganization, each was given the title of vice chair.
Our new organization reflects our diversified
sources of earnings and is now more closely aligned
with our product and distribution capabilities. It
enhances our ability to take advantage of ongoing
growth opportunities and eliminates redundancies that
we expect will result in cost savings. And it provides a
clearer picture of the way we do business.
In each of our businesses, we are making the kind
Letter from the chairman
My Fellow Shareholders: I’m pleased to report that Prudential
Financial concluded a successful first year as a public company.