Nationwide Financial Reports Third Quarter Results

  
    
  
  
    
      Nationwide Financial Services, Inc. (NYSE: NFS), a leading 
      provider of long-term savings and retirement products, today reported a 
      third quarter 2008 net loss of $346.4 million, or $2.51 per diluted 
      share, compared with third quarter 2007 net income of $147.0 million, or 
      $1.03 per diluted share.
    
    
      The net loss for the current quarter includes non-operating realized 
      investment losses, net of related adjustments to amortization, of $315.4 
      million, or $2.29 per diluted share, compared to $8.4 million, or $0.06 
      per diluted share, in the prior year quarter. The $315.4 million 
      non-operating investment loss was driven primarily by $257.8 million of 
      other-than-temporary impairments, $17.2 million of net realized losses 
      on sales and $42.0 million of losses related to the mark-to-market of 
      variable annuity living benefit liabilities net of economic hedges and 
      amortization related to net realized gains (losses).
    
    
      Nationwide Financial analyzes operating performance using a non-GAAP 
      financial measure called “net operating 
      (loss)/earnings,” which the company believes 
      enhances understanding and comparability of its performance by 
      highlighting its results from continuing operations and the underlying 
      profitability drivers. See Exhibit 3 for a description of non-GAAP 
      financial measures included in this earnings announcement, a 
      reconciliation of non-GAAP financial measures to GAAP financial 
      measures, and the substantive reasons why the company believes 
      presentation of these non-GAAP financial measures provides useful 
      information to investors regarding its financial condition and results 
      of operations. The table on the top of page 8 reconciles net operating 
      earnings to net income, including the related diluted per share amounts 
      for the periods indicated.
    
    
      “We, along with others in the industry, 
      experienced large losses in our investment portfolio during the third 
      quarter due to the unprecedented market conditions caused by the 
      disruptions in the financial system,” said 
      Jerry Jurgensen, chief executive officer. “While 
      these losses had a significant impact on our quarterly profitability, 
      given the environment, we do not see these results as surprising or as 
      negatively impacting our long-term financial stability.”
    
    
      “We are fortunate that we made significant 
      progress over the last few years to improve our financial condition, 
      providing us with a strong balance sheet and the liquidity to weather 
      times like these,” added Jurgensen. “Having 
      entered this crisis from a strong financial position, we believe we have 
      the capital to keep our promises to customers without hesitation.”
    
    
      Highlights from the quarter:
    
    
      The net operating loss for the third quarter was $21.8 million, or $0.16 
      per diluted share, compared to net operating earnings of $154.6 million, 
      or $1.08 per diluted share, for the same period a year ago.
    
    
      The operating loss was driven by several items, all related to the 
      distress in the financial markets. During the third quarter, the Company 
      retrospectively unlocked its deferred policy acquisition costs (DAC) for 
      variable annuities due to unfavorable equity market returns, resulting 
      in an increase in DAC amortization and other related balances totaling 
      $177.2 million in the individual investments segment. The Company’s 
      corporate and other segment results were adversely impacted by $49.1 
      million in losses from hedge funds and private equities and the 
      mark-to-market of investments. Also during the third quarter, the 
      Company refined its separate account dividends received deduction (DRD) 
      calculation and estimation. As a result, the Company had a $10.0 million 
      lower tax benefit from DRD than previously estimated.
    
    
      Excluding the items listed above, net operating earnings were 
      approximately $135.3 million, or $0.98 per diluted share. The decrease 
      from the prior year quarter primarily was driven by lower asset-based 
      fees, the result of the equity market driven decrease in variable assets.
    
    
      Sales (as defined in Exhibit 3) were $3.9 billion in the third quarter 
      of 2008 compared to $4.4 billion in the prior year quarter. Sales 
      through affiliated channels decreased 1 percent as an increase in public 
      sector sales through Nationwide Retirement Solutions was more than 
      offset by lower Nationwide Financial Network (NFN) production. Sales 
      through non-affiliated distribution channels decreased 18 percent due to 
      lower variable annuity and private sector retirement plan sales.
    
    
      Net outflows (excluding the corporate and other segment) were $135.7 
      million in the third quarter of 2008 compared to net outflows of $270.1 
      million in the prior year quarter. The improvement was driven by lower 
      withdrawals in both the private sector and fixed annuities, partially 
      offset by lower variable annuity deposits.
    
    
      
        
        
        
           
        
        
          Three months ended
        
        
        
      
      
        
        
        
        
        
          September 30,
        
        
           
        
      
      
        
          (in millions)
        
        
           
        
        
          2008
        
        
           
        
        
          2007
        
        
           
        
        
          Change
        
      
      
        
        
        
        
        
          (Unaudited)
        
        
           
        
        
          (Unaudited)
        
        
           
        
        
        
      
      
        
          Net (loss) income
        
        
        
        
          $
        
        
          (346.4
        
        
          )
        
        
        
        
          $
        
        
          147.0
        
        
        
        
        
        
          n.m.
        
      
      
        
          Net (loss) income per diluted share
        
        
        
        
          $
        
        
          (2.51
        
        
          )
        
        
        
        
          $
        
        
          1.03
        
        
        
        
        
        
          n.m.
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Net operating (loss) earnings
        
        
        
        
          $
        
        
          (21.8
        
        
          )
        
        
        
        
          $
        
        
          154.6
        
        
        
        
        
        
          n.m.
        
      
      
        
          Net operating (loss) earnings per diluted share
        
        
        
        
          $
        
        
          (0.16
        
        
          )
        
        
        
        
          $
        
        
          1.08
        
        
        
        
        
        
          n.m.
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Sales
        
        
        
        
          $
        
        
          3,892.1
        
        
        
        
        
        
          $
        
        
          4,444.2
        
        
        
        
        
        
          -12
        
        
          %
        
      
      
        
          Net flows (excluding corporate and other segment)
        
        
        
        
        
        
          (135.7
        
        
          )
        
        
        
        
        
        
          (270.1
        
        
          )
        
        
        
        
          50
        
        
          %
        
      
      
        
          Total revenues
        
        
        
        
        
        
          484.6
        
        
        
        
        
        
        
        
          1,131.8
        
        
        
        
        
        
          -57
        
        
          %
        
      
      
        
          
            Total net operating revenues(a)
          
        
        
        
        
        
        
          717.7
        
        
        
        
        
        
        
        
          815.5
        
        
        
        
        
        
          -12
        
        
          %
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Customer funds managed and administered
        
        
        
        
          $
        
        
          140,882.5
        
        
        
        
        
        
          $
        
        
          165,275.2
        
        
        
        
        
        
          -15
        
        
          %
        
      
      
        
          Total assets
        
        
        
        
          $
        
        
          102,086.9
        
        
        
        
        
        
          $
        
        
          121,460.5
        
        
        
        
        
        
          -16
        
        
          %
        
      
      
        
          
            Shareholders' equity excluding AOCI(b)
          
        
        
        
        
          $
        
        
          5,056.0
        
        
        
        
        
        
          $
        
        
          5,401.5
        
        
        
        
        
        
          -6
        
        
          %
        
      
      
        
          Net operating return on average equity excluding AOCI
        
        
        
        
        
        
          -1.7
        
        
          %
        
        
        
        
        
        
          11.3
        
        
          %
        
        
        
        
          n.m.
        
      
      
        
          Book value per basic share excluding AOCI
        
        
        
        
          $
        
        
          36.64
        
        
        
        
        
        
          $
        
        
          38.92
        
        
        
        
        
        
          -6
        
        
          %
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            (a) Total operating revenues, net of interest credited to 
            policyholder accounts
          
        
      
      
        
          
            (b)Accumulated other comprehensive income (AOCI)
          
        
      
    
    
      Total revenues declined 57 percent compared to the prior year quarter 
      driven by realized investment losses, primarily the result of 
      impairments.
    
    
      Net operating revenues, defined as operating revenues net of interest 
      credited to policyholder accounts, decreased 12 percent compared to the 
      same period last year. The decline in both total and net operating 
      revenues resulted from decreased asset-based fees associated with lower 
      variable account values. Additionally, interest spread income declined 
      due to lower investment income on hedge fund and private equity 
      investments in the corporate and other segment, as previously discussed.
    
    
      Book value per basic share, excluding accumulated other comprehensive 
      income (AOCI), was $36.64 per basic share as of September 30, 2008, 
      compared to $39.03 per basic share as of December 31, 2007.
    
    
      Net operating return on average equity, excluding AOCI (as defined in 
      Exhibit 3), was negative 1.7 percent for the quarter compared to 11.3 
      percent in the third quarter of 2007.
    
    
      “Third quarter sales growth and bottom-line 
      results were adversely affected by the severe disruptions in the 
      financial markets and slowing economy, reflected by a 9 percent 
      sequential and 16 percent year-over-year decline in the S&P 500 daily 
      average,” said Mark Thresher, president and 
      chief operating officer. “As would be 
      expected in this type of environment, revenue and earnings in our core 
      businesses were pressured by lower net asset-based fees and interest 
      spread income, which was further compounded by significantly higher 
      amortization associated with the DAC unlock.”
    
    
      “While the turmoil in the financial system 
      negatively impacted our quarterly profitability, NFS remains a strong 
      and stable company that is well-positioned to effectively compete in 
      these challenging market conditions. We entered this crisis with 
      significant excess capital and strong cash flows. While losses this 
      quarter reduced our level of excess capital, NFS remains 
      well-capitalized with a strong balance sheet. The strength of our 
      capital position is reflected by our consolidated risk-based capital 
      (RBC) ratio, which we estimate to be approximately 495 percent as of the 
      end of the third quarter. The consolidated RBC ratio includes capital at 
      the NFS holding company and all life companies,” 
      Thresher added.
    
    
      Operating Segment Second Quarter Financial Highlights
    
    
      Nationwide Financial reports its results in three primary business 
      segments: individual investments, retirement plans and individual 
      protection. Following are financial highlights and a discussion of the 
      results for each of these segments, plus a discussion of results for the 
      corporate and other segment.
    
    
      Individual Investments Segment
    
    
      
        
           
        
        
           
        
        
        
        
        
        
           
        
        
          Three months ended
        
        
           
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
          September 30,
        
        
           
        
        
           
        
      
      
        
          (in millions)
        
        
           
        
        
           
        
        
          2008
        
        
           
        
        
          2007
        
        
           
        
        
          Change
        
      
      
        
        
        
        
        
        
        
        
        
        
        
          (Unaudited)
        
        
           
        
        
          (Unaudited)
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Individual variable annuity sales
        
        
        
        
          $
        
        
          894.0
        
        
        
        
        
        
          $
        
        
          1,393.5
        
        
        
        
        
        
          -36
        
        
          %
        
      
      
        
          Individual fixed annuity sales
        
        
        
        
        
        
          77.2
        
        
        
        
        
        
        
        
          37.0
        
        
        
        
        
        
          109
        
        
          %
        
      
      
        
          Income product sales
        
        
        
        
        
        
        
        
          37.7
        
        
        
        
        
        
        
        
          54.4
        
        
        
        
        
        
          -31
        
        
          %
        
      
      
        
          Advisory services program sales
        
        
        
        
           
        
        
          4.6
        
        
           
        
        
        
        
           
        
        
          42.6
        
        
           
        
        
        
        
          -89
        
        
          %
        
      
      
        
        
        
        
        
        
        
          Total sales
        
        
        
        
          $
        
        
          1,013.5
        
        
           
        
        
        
        
          $
        
        
          1,527.5
        
        
           
        
        
        
        
          -34
        
        
          %
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Net flows
        
        
        
        
        
        
          $
        
        
          (803.8
        
        
          )
        
        
        
        
          $
        
        
          (799.5
        
        
          )
        
        
        
        
          -1
        
        
          %
        
      
      
        
          
            Net operating revenues(a)
          
        
        
        
        
        
        
        
        
          221.2
        
        
        
        
        
        
        
        
          249.3
        
        
        
        
        
        
          -11
        
        
          %
        
      
      
        
          Pre-tax operating (loss) earnings
        
        
        
        
        
        
          (120.7
        
        
          )
        
        
        
        
        
        
          65.0
        
        
        
        
        
        
          -286
        
        
          %
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Ending account values
        
        
        
        
        
        
          $
        
        
          44,287.2
        
        
        
        
        
        
          $
        
        
          54,933.6
        
        
        
        
        
        
          -19
        
        
          %
        
      
      
        
          Interest spread on average general account values
        
        
        
        
        
        
          1.58
        
        
          %
        
        
        
        
        
        
          1.76
        
        
          %
        
        
        
        
        
      
      
        
          Pre-tax operating (loss) earnings to average account values
        
        
        
        
        
        
          -1.04
        
        
          %
        
        
        
        
        
        
          0.48
        
        
          %
        
        
        
        
        
      
      
        
          Return on average allocated capital
        
        
        
        
        
        
          -21.7
        
        
          %
        
        
        
        
        
        
          15.4
        
        
          %
        
        
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            (a) Total operating revenues, net of interest credited to 
            policyholder accounts
          
        
      
    
    
      Third quarter individual investments sales declined 34 percent compared 
      to the prior year. The decline was driven by lower demand for variable 
      annuities due to market volatility and a corresponding slowdown in 
      consumer demand for equity-linked products. The market volatility helped 
      drive a fixed annuity sales increase of 109 percent, or $40.2 million, 
      over the prior year quarter.
    
    
      Net outflows were $803.8 million in the third quarter of 2008 compared 
      to $799.5 million in the third quarter a year ago.
    
    
      The pre-tax operating loss in the quarter was $120.7 million compared to 
      earnings of $65.0 million in the same quarter a year ago. Included in 
      the quarter was a $177.2 million increase in amortization of DAC and 
      other related balances as previously discussed. Additionally, lower 
      asset fees and interest spread income were partially offset by lower 
      operating expenses.
    
    
      Interest spread income declined 23 percent compared to the prior year 
      quarter primarily attributable to lower general account assets caused by 
      fixed annuity net outflows.
    
    
      Retirement Plans Segment
    
    
      
        
        
        
        
        
           
        
        
          
            Three months ended
          
          
            September 30,
          
        
        
           
        
        
           
        
      
      
        
          (in millions)
        
        
           
        
        
           
        
        
          2008
        
        
           
        
        
          2007
        
        
           
        
        
          Change
        
      
      
        
        
        
        
        
        
        
          (Unaudited)
        
        
           
        
        
          (Unaudited)
        
        
           
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Private sector sales
        
        
        
        
        
        
          $
        
        
          1,404.4
        
        
        
        
        
        
          $
        
        
          1,504.5
        
        
        
        
        
        
          -7
        
        
          %
        
      
      
        
          Public sector sales
        
        
        
        
        
        
           
        
        
          1,127.5
        
        
           
        
        
        
        
           
        
        
          1,066.1
        
        
           
        
        
        
        
          6
        
        
          %
        
      
      
        
        
        
          Total sales
        
        
        
        
          $
        
        
          2,531.9
        
        
           
        
        
        
        
          $
        
        
          2,570.6
        
        
           
        
        
        
        
          -2
        
        
          %
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Net flows
        
        
        
        
        
        
          $
        
        
          484.3
        
        
        
        
        
        
          $
        
        
          387.2
        
        
        
        
        
        
          25
        
        
          %
        
      
      
        
          
            Net operating revenues(a)
          
        
        
        
        
        
        
        
        
          164.2
        
        
        
        
        
        
        
        
          173.1
        
        
        
        
        
        
          -5
        
        
          %
        
      
      
        
          Pre-tax operating earnings
        
        
        
        
        
        
          55.3
        
        
        
        
        
        
        
        
          59.6
        
        
        
        
        
        
          -7
        
        
          %
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Ending account values
        
        
        
        
        
        
          $
        
        
          71,223.2
        
        
        
        
        
        
          $
        
        
          81,031.3
        
        
        
        
        
        
          -12
        
        
          %
        
      
      
        
          Interest spread on average general account values
        
        
        
        
        
        
          1.89
        
        
          %
        
        
        
        
        
        
          1.80
        
        
          %
        
        
        
        
        
      
      
        
          Pre-tax operating earnings to average account values
        
        
        
        
        
        
          0.30
        
        
          %
        
        
        
        
        
        
          0.29
        
        
          %
        
        
        
        
        
      
      
        
          Return on average allocated capital
        
        
        
        
        
        
          19.9
        
        
          %
        
        
        
        
        
        
          23.5
        
        
          %
        
        
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            (a) Total operating revenues, net of interest credited to 
            policyholder accounts
          
        
      
    
    
      Third quarter 2008 retirement plans sales decreased 2 percent compared 
      to the prior year quarter. Private sector sales declined 7 percent as 
      the continued volatility in the capital markets has reduced the number 
      and size of takeover cases. Public sector sales grew 6 percent compared 
      to a year ago driven by increased deposits into several large plans.
    
    
      Retirement plans net inflows were $484.3 million compared to $387.2 
      million in the same period a year ago. The increase in net flows was 
      driven by an increase in public sector sales and lower private sector 
      withdrawals.
    
    
      Pre-tax operating earnings were $55.3 million in the current quarter 
      compared to $59.6 million a year ago. The year-over-year decline of 7 
      percent was primarily due to lower net asset-based fees, partially 
      offset by lower operating expenses.
    
    
      Interest spread income increased 6 percent, driven by a modest 
      improvement in the earned rate and lower crediting rates.
    
    
      Individual Protection Segment
    
    
      
        
        
        
        
        
           
        
        
          Three months ended
        
      
      
        
        
        
        
        
        
        
          September 30,
        
      
      
        
          (in millions)
        
        
           
        
        
           
        
        
          2008
        
        
           
        
        
          2007
        
        
           
        
        
          Change
        
      
      
        
        
        
        
        
        
        
          (Unaudited)
        
        
           
        
        
          (Unaudited)
        
        
           
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Individual investment life first year sales
        
        
        
        
          $
        
        
          25.6
        
        
        
        
        
        
          $
        
        
          41.1
        
        
        
        
        
        
          -38
        
        
          %
        
      
      
        
          COLI/BOLI first year sales
        
        
        
        
        
        
          36.7
        
        
        
        
        
        
        
        
          20.6
        
        
        
        
        
        
          78
        
        
          %
        
      
      
        
          Traditional/universal life first year sales
        
        
        
        
           
        
        
          31.6
        
        
           
        
        
        
        
           
        
        
          32.0
        
        
           
        
        
        
        
          -1
        
        
          %
        
      
      
        
        
        
          Total first year sales
        
        
        
        
          $
        
        
          93.9
        
        
           
        
        
        
        
          $
        
        
          93.7
        
        
           
        
        
        
        
          0
        
        
          %
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Net flows
        
        
        
        
        
        
          $
        
        
          183.8
        
        
        
        
        
        
          $
        
        
          142.2
        
        
        
        
        
        
          29
        
        
          %
        
      
      
        
          
            Net operating revenues(a)
          
        
        
        
        
        
        
          296.2
        
        
        
        
        
        
        
        
          284.6
        
        
        
        
        
        
          4
        
        
          %
        
      
      
        
          Pre-tax operating earnings
        
        
        
        
        
        
          72.2
        
        
        
        
        
        
        
        
          65.2
        
        
        
        
        
        
          11
        
        
          %
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Policy reserves
        
        
        
        
        
        
          $
        
        
          18,520.9
        
        
        
        
        
        
          $
        
        
          20,956.4
        
        
        
        
        
        
          -12
        
        
          %
        
      
      
        
          Life insurance in-force
        
        
        
        
          $
        
        
          142,481.1
        
        
        
        
        
        
          $
        
        
          134,750.0
        
        
        
        
        
        
          6
        
        
          %
        
      
      
        
          Pre-tax operating earnings to operating revenues
        
        
        
        
        
        
          20.8
        
        
          %
        
        
        
        
        
        
          19.6
        
        
          %
        
        
        
        
        
      
      
        
          Return on average allocated capital
        
        
        
        
        
        
          9.5
        
        
          %
        
        
        
        
        
        
          9.4
        
        
          %
        
        
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            (a) Total operating revenues, net of interest credited to 
            policyholder accounts
          
        
      
    
    
      Total first year individual protection sales were $93.9 million for the 
      quarter, compared to $93.7 million in the prior year quarter. An 
      increase in corporate- and bank-owned life insurance (COLI/BOLI) first 
      year sales was largely offset by a decline in individual investment life 
      sales. Fixed life (traditional and universal life) first-year sales were 
      flat year-over-year.
    
    
      Pre-tax operating earnings were $72.2 million in the current quarter 
      compared to $65.2 million a year ago. Net operating revenues increased 4 
      percent driven by higher policy charges and net investment income, 
      partially offset by higher benefit expenses. Interest spread income 
      increased 6 percent, driven by a higher earned rate.
    
    
      Corporate and Other Segment
    
    
      The corporate and other segment pre-tax operating loss was $50.4 million 
      in the third quarter of 2008 compared to earnings of $13.9 million in 
      the third quarter of 2007. Results were adversely impacted by a $21.2 
      million operating loss in the Company’s 
      structured products business and other investments subject to 
      mark-to-market adjustments. Additionally, a $36.8 million decrease in 
      interest spread income was primarily driven by lower income from hedge 
      fund and private equity investments.
    
    
      The current quarter interest spread margin on the medium-term note 
      program was 85 basis points compared to 93 basis points in the prior 
      year. During the current quarter, $125.0 million of medium-term notes 
      were issued and $735.0 million matured.
    
    
      Business Outlook
    
    
      Due to the pending transaction with Nationwide Mutual to take Nationwide 
      Financial private in late 2008 or in the first quarter of 2009, the 
      Company will no longer provide guidance for future periods.
    
    
      Supplemental Financial Information
    
    
      More detailed financial information can be found in the Nationwide 
      Financial statistical supplement for the third quarter of 2008, which is 
      available on the investor relations section of the company’s 
      Web site at www.nationwide.com.
    
    
      About Nationwide Financial
    
    
      Nationwide Financial Services, Inc. (NYSE: NFS), a publicly traded 
      company based in Columbus, Ohio, provides a variety of financial 
      services that help consumers invest and protect their long-term assets, 
      and offers retirement plans and services through both public- and 
      private-sector employers.
    
    
      Nationwide Financial is part of the Nationwide group of companies, which 
      offers diversified insurance and financial services. The group is led by 
      Nationwide Mutual Insurance Company, which is ranked No. 108 on the 
      Fortune 500 based on 2007 revenue. To obtain investor materials, 
      including the Company's 2007 Annual Report to Shareholders, 2007 Annual 
      Report on Form 10-K, quarterly statistical supplements and other 
      corporate announcements, please visit the investor relations section of 
      the Company’s Web site at www.nationwide.com.
    
    
      
        
          Reconciliation of net operating (loss) earnings to net (loss) 
          income
        
      
      
        
        
        
        
        
        
        
           
        
        
        
        
        
      
      
        
        
        
          Three months ended September 30,
        
      
      
        
        
        
          2008
        
        
        
        
          2007
        
      
      
        
          (in millions, except per share data)
        
        
          Amount
        
        
          Per diluted share
        
        
           
        
        
          Amount
        
        
          Per diluted share
        
      
      
        
          Net operating (loss) earnings
        
        
          $
        
        
          (21.8
        
        
          )
        
        
          $
        
        
          (0.16
        
        
          )
        
        
        
        
          $
        
        
          154.6
        
        
        
        
          $
        
        
          1.08
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            Non-operating realized investment losses including 1 
            related adjustments to amortization, net of taxes
          
        
        
        
        
          (315.4
        
        
          )
        
        
        
        
          (2.29
        
        
          )
        
        
        
        
        
        
          (8.4
        
        
          )
        
        
        
        
          (0.06
        
        
          )
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            Discontinued operations, net of taxes 2
          
        
        
           
        
        
          (9.2
        
        
          )
        
        
           
        
        
          (0.06
        
        
          )
        
        
           
        
        
           
        
        
          0.8
        
        
           
        
        
           
        
        
          0.01
        
        
           
        
      
      
        
          Net (loss) income
        
        
          $
        
        
          (346.4
        
        
          )
        
        
          $
        
        
          (2.51
        
        
          )
        
        
           
        
        
          $
        
        
          147.0
        
        
           
        
        
          $
        
        
          1.03
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            1 Excluding operating items (periodic net 
            amounts paid or received on interest rate swaps that do not 
            qualify for hedge accounting treatment, trading portfolio realized 
            gains and losses, trading portfolio valuation changes, and net 
            realized gains and losses)
          
        
      
      
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            2 The results of operations of TBG 
            Financial are reflected as discontinued.
          
        
      
    
    
      Forward-Looking Information
    
    
      The information included herein contains certain forward-looking 
      statements within the meaning of the Private Securities Litigation 
      Reform Act of 1995 with respect to the results of operations and 
      businesses of the Nationwide Financial Services, Inc. and subsidiaries 
      (NFS or collectively, the Company). These forward-looking statements 
      involve certain risks and uncertainties. Factors that may cause actual 
      results to differ materially from those contemplated or projected, 
      forecast, estimated or budgeted in such forward-looking statements 
      include, among other, the following possibilities: (i) the possibility 
      that the acquisition of the Company’s 
      publicly held common shares by NMIC will not close or that the closing 
      will be delayed; (ii) the Company’s primary 
      reliance, as a holding company, on dividends from its subsidiaries to 
      meet debt service obligations and the applicable regulatory restrictions 
      on the ability of the Company’s subsidiaries 
      to pay such dividends; (iii) the potential impact on the Company’s 
      reported net income and related disclosures that could result from the 
      adoption of certain accounting and/or financial reporting standards 
      issued by the Financial Accounting Standards Board, the United States 
      Securities and Exchange Commission or other standard-setting bodies; 
      (iv) tax law changes impacting the tax treatment of life insurance and 
      investment products; (v) repeal of the federal estate tax; (vi) 
      heightened competition, including specifically the intensification of 
      price competition, the entry of new competitors and the development of 
      new products by new and existing competitors; (vii) adverse state and 
      federal legislation and regulation, including limitations on premium 
      levels, increases in minimum capital and reserves and other financial 
      viability requirements, restrictions on mutual fund distribution payment 
      arrangements such as revenue sharing and 12b-1 payments, and regulation 
      changes resulting from industry practice investigations; (viii) failure 
      to expand distribution channels in order to obtain new customers or 
      failure to retain existing customers; (ix) inability to carry out 
      marketing and sales plans, including, among others, development of new 
      products and/or changes to certain existing products and acceptance of 
      the new and/or revised products in the market; (x) changes in interest 
      rates and the equity markets causing a reduction of investment income 
      and/or asset fees, an acceleration of the amortization of DAC and/or 
      value of business acquired, reduction in separate account assets or a 
      reduction in the demand for the Company’s 
      products; (xi) reduction in the value of the Company’s 
      investment portfolio as a result of changes in interest rates, yields 
      and liquidity in the market as well as geopolitical conditions and the 
      impact of political, regulatory, judicial, economic or financial events, 
      including terrorism, affecting the market generally and companies in the 
      Company’s investment portfolio specifically; 
      (xii) general economic and business conditions that are less favorable 
      than expected, including the impact of recent distress in financial 
      markets on the Company’s collateral 
      obligations, sales and counterparty credit risk; (xiii) competitive, 
      regulatory or tax changes that affect the cost of, or demand for, the 
      Company’s products; (xiv) unanticipated 
      changes in industry trends and ratings assigned by nationally recognized 
      rating organizations; (xv) settlement of tax liabilities for amounts 
      that differ significantly from those recorded on the balance sheet; 
      (xvi) deviations from assumptions regarding future persistency, 
      mortality (including as a result of the outbreak of a pandemic illness, 
      such as Avian Flu), morbidity and interest rates used in calculating 
      reserve amounts and in pricing the Company’s 
      products; (xvii) adverse litigation results and/or resolution of 
      litigation and/or arbitration, investigation and/or inquiry results that 
      could result in monetary damages or impact the manner in which the 
      Company conducts its operations; and (xviii) adverse consequences, 
      including financial and reputation costs, regulatory problems and 
      potential loss of customers resulting from failure to meet privacy 
      regulations and/or protect the Company’s 
      customers’ confidential information.
    
    
      
        
          Exhibit 1 to Third Quarter 2008 Results Announcement
        
      
      
        
        
        
        
        
           
        
        
        
        
        
        
        
        
           
        
        
        
      
      
        
          Nationwide Financial Services, Inc. and Subsidiaries
        
      
      
        
          Condensed Consolidated Statements of Income
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
          Three months ended
        
        
          Nine months ended
        
      
      
        
        
        
          September 30,
        
        
          September 30,
        
      
      
        
          (in millions, except per share data)
        
        
          2008
        
        
           
        
        
          2007
        
        
           
        
        
          2008
        
        
           
        
        
          2007
        
      
      
        
        
        
          (Unaudited)
        
        
        
        
          (Unaudited)
        
        
          (Unaudited)
        
        
        
        
          (Unaudited)
        
      
      
        
          Revenues:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Policy charges
        
        
          $
        
        
          336.8
        
        
        
        
        
        
          $
        
        
          345.5
        
        
        
        
        
        
          $
        
        
          1,036.3
        
        
        
        
        
        
          $
        
        
          1,024.5
        
        
        
      
      
        
          Premiums
        
        
        
        
          89.8
        
        
        
        
        
        
        
        
          101.7
        
        
        
        
        
        
        
        
          304.1
        
        
        
        
        
        
        
        
          317.0
        
        
        
      
      
        
          Net investment income
        
        
        
        
          480.8
        
        
        
        
        
        
        
        
          547.3
        
        
        
        
        
        
        
        
          1,511.8
        
        
        
        
        
        
        
        
          1,714.9
        
        
        
      
      
        
          Net realized investment losses
        
        
        
        
          (555.1
        
        
          )
        
        
        
        
        
        
          (20.4
        
        
          )
        
        
        
        
        
        
          (787.9
        
        
          )
        
        
        
        
        
        
          (34.4
        
        
          )
        
      
      
        
          Other income
        
        
           
        
        
          132.3
        
        
           
        
        
           
        
        
           
        
        
          157.7
        
        
           
        
        
           
        
        
           
        
        
          417.1
        
        
           
        
        
           
        
        
           
        
        
          438.2
        
        
           
        
      
      
        
          Total revenues
        
        
          $
        
        
          484.6
        
        
           
        
        
           
        
        
           
        
        
          1,131.8
        
        
           
        
        
           
        
        
           
        
        
          2,481.4
        
        
           
        
        
           
        
        
           
        
        
          3,460.2
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Benefits and Expenses:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Interest credited to policyholder accounts
        
        
        
        
          300.5
        
        
        
        
        
        
        
        
          333.3
        
        
        
        
        
        
        
        
          907.2
        
        
        
        
        
        
        
        
          1,012.4
        
        
        
      
      
        
          Benefits and claims
        
        
        
        
          183.7
        
        
        
        
        
        
        
        
          161.4
        
        
        
        
        
        
        
        
          545.9
        
        
        
        
        
        
        
        
          501.1
        
        
        
      
      
        
          Policyholder dividends
        
        
        
        
          23.7
        
        
        
        
        
        
        
        
          23.1
        
        
        
        
        
        
        
        
          72.0
        
        
        
        
        
        
        
        
          64.4
        
        
        
      
      
        
          Amortization of deferred policy acquisition costs
        
        
        
        
          224.8
        
        
        
        
        
        
        
        
          112.1
        
        
        
        
        
        
        
        
          460.7
        
        
        
        
        
        
        
        
          263.6
        
        
        
      
      
        
          Amortization of value of business acquired and other intangible 
          assets
        
        
        
        
          9.6
        
        
        
        
        
        
        
        
          12.7
        
        
        
        
        
        
        
        
          22.9
        
        
        
        
        
        
        
        
          40.0
        
        
        
      
      
        
          Interest expense
        
        
        
        
          26.1
        
        
        
        
        
        
        
        
          28.9
        
        
        
        
        
        
        
        
          79.7
        
        
        
        
        
        
        
        
          80.9
        
        
        
      
      
        
          Debt extinguishment costs
        
        
        
        
          -
        
        
        
        
        
        
        
        
          -
        
        
        
        
        
        
        
        
          -
        
        
        
        
        
        
        
        
          10.2
        
        
        
      
      
        
          Other operating expenses
        
        
           
        
        
          245.1
        
        
           
        
        
           
        
        
           
        
        
          269.4
        
        
           
        
        
           
        
        
           
        
        
          766.6
        
        
           
        
        
           
        
        
           
        
        
          802.0
        
        
           
        
      
      
        
          Total benefits and expenses
        
        
          $
        
        
          1,013.5
        
        
           
        
        
           
        
        
           
        
        
          940.9
        
        
           
        
        
           
        
        
           
        
        
          2,855.0
        
        
           
        
        
           
        
        
           
        
        
          2,774.6
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            (Loss) income from continuing operations before federal income tax 
            (benefit) expense
          
        
        
          $
        
        
          (528.9
        
        
          )
        
        
        
        
        
        
          190.9
        
        
        
        
        
        
        
        
          (373.6
        
        
          )
        
        
        
        
        
        
          685.6
        
        
        
      
      
        
          Federal income tax (benefit) expense
        
        
           
        
        
          (191.7
        
        
          )
        
        
           
        
        
           
        
        
          44.7
        
        
           
        
        
           
        
        
           
        
        
          (166.1
        
        
          )
        
        
           
        
        
           
        
        
          171.4
        
        
           
        
      
      
        
          (Loss) income from continuing operations
        
        
          $
        
        
          (337.2
        
        
          )
        
        
        
        
        
        
          146.2
        
        
        
        
        
        
        
        
          (207.5
        
        
          )
        
        
        
        
        
        
          514.2
        
        
        
      
      
        
          Discontinued operations, net of taxes
        
        
        
        
          (9.2
        
        
          )
        
        
        
        
        
        
          0.8
        
        
        
        
        
        
        
        
          (9.0
        
        
          )
        
        
        
        
        
        
          44.4
        
        
        
      
      
        
          Cumulative effect of adoption of accounting principle, net of taxes
        
        
           
        
        
          -
        
        
           
        
        
           
        
        
           
        
        
          -
        
        
           
        
        
           
        
        
           
        
        
          -
        
        
           
        
        
           
        
        
           
        
        
          (6.0
        
        
          )
        
      
      
        
          Net (loss) income
        
        
          $
        
        
          (346.4
        
        
          )
        
        
           
        
        
          $
        
        
          147.0
        
        
           
        
        
           
        
        
          $
        
        
          (216.5
        
        
          )
        
        
           
        
        
          $
        
        
          552.6
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          (Loss) earnings from continuing operations per common share:
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Basic
        
        
          $
        
        
          (2.45
        
        
          )
        
        
        
        
          $
        
        
          1.03
        
        
        
        
        
        
          $
        
        
          (1.50
        
        
          )
        
        
        
        
          $
        
        
          3.58
        
        
        
      
      
        
          Diluted
        
        
          $
        
        
          (2.45
        
        
          )
        
        
        
        
          $
        
        
          1.02
        
        
        
        
        
        
          $
        
        
          (1.50
        
        
          )
        
        
        
        
          $
        
        
          3.55
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          (Loss) earnings per common share:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Basic
        
        
          $
        
        
          (2.51
        
        
          )
        
        
        
        
          $
        
        
          1.04
        
        
        
        
        
        
          $
        
        
          (1.57
        
        
          )
        
        
        
        
          $
        
        
          3.85
        
        
        
      
      
        
          Diluted
        
        
          $
        
        
          (2.51
        
        
          )
        
        
        
        
          $
        
        
          1.03
        
        
        
        
        
        
          $
        
        
          (1.57
        
        
          )
        
        
        
        
          $
        
        
          3.82
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Weighted average common shares outstanding:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Basic
        
        
        
        
          137.9
        
        
        
        
        
        
        
        
          141.8
        
        
        
        
        
        
        
        
          137.9
        
        
        
        
        
        
        
        
          143.6
        
        
        
      
      
        
          Diluted
        
        
        
        
          137.9
        
        
        
        
        
        
        
        
          142.7
        
        
        
        
        
        
        
        
          137.9
        
        
        
        
        
        
        
        
          144.7
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Cash dividends declared per common share
        
        
          $
        
        
          0.29
        
        
        
        
        
        
          $
        
        
          0.26
        
        
        
        
        
        
          $
        
        
          0.87
        
        
        
        
        
        
          $
        
        
          0.78
        
        
        
      
    
    
      
        
          Exhibit 2 to Third Quarter 2008 Results Announcement
        
      
      
        
        
        
        
        
           
        
        
        
      
      
        
          Nationwide Financial Services, Inc. and Subsidiaries
        
      
      
        
          Condensed Consolidated Balance Sheets
        
      
      
        
        
        
          September 30,
        
        
        
        
          December 31,
        
      
      
        
          (in millions)
        
        
          2008
        
        
           
        
        
          2007
        
      
      
        
        
        
          (Unaudited)
        
        
        
        
        
      
      
        
          Assets
        
        
        
        
        
        
        
      
      
        
          Investments:
        
        
        
        
        
        
        
      
      
        
          Securities available-for-sale, at fair value:
        
        
        
        
        
        
        
      
      
        
          Fixed maturity securities
        
        
          $
        
        
          24,849.6
        
        
        
        
        
        
          $
        
        
          27,189.2
        
        
        
      
      
        
          Equity securities
        
        
        
        
          69.3
        
        
        
        
        
        
        
        
          124.2
        
        
        
      
      
        
          Mortgage loans on real estate, net
        
        
        
        
          7,913.9
        
        
        
        
        
        
        
        
          8,316.1
        
        
        
      
      
        
          Short-term investments, including amounts managed by a related party
        
        
        
        
          1,188.6
        
        
        
        
        
        
        
        
          1,173.6
        
        
        
      
      
        
          Other investments
        
        
           
        
        
          2,359.3
        
        
           
        
        
           
        
        
           
        
        
          2,265.0
        
        
           
        
      
      
        
          Total investments
        
        
        
        
          36,380.7
        
        
        
        
        
        
        
        
          39,068.1
        
        
        
      
      
        
        
        
        
        
        
        
           
        
      
      
        
          Cash
        
        
        
        
          145.0
        
        
        
        
        
        
        
        
          73.6
        
        
        
      
      
        
          Accrued investment income
        
        
        
        
          388.7
        
        
        
        
        
        
        
        
          368.4
        
        
        
      
      
        
          Deferred policy acquisition costs
        
        
        
        
          4,428.3
        
        
        
        
        
        
        
        
          4,095.6
        
        
        
      
      
        
          Value of business acquired
        
        
        
        
          338.2
        
        
        
        
        
        
        
        
          354.8
        
        
        
      
      
        
          Goodwill
        
        
        
        
          292.4
        
        
        
        
        
        
        
        
          301.2
        
        
        
      
      
        
          Other assets
        
        
        
        
          2,205.1
        
        
        
        
        
        
        
        
          2,090.4
        
        
        
      
      
        
          Separate account assets
        
        
           
        
        
          57,908.5
        
        
           
        
        
           
        
        
           
        
        
          72,855.0
        
        
           
        
      
      
        
          Total assets
        
        
          $
        
        
          102,086.9
        
        
           
        
        
           
        
        
          $
        
        
          119,207.1
        
        
           
        
      
      
        
        
        
        
        
        
        
           
        
      
      
        
          Liabilities and Shareholders’ Equity
        
        
        
        
        
        
        
      
      
        
          Liabilities:
        
        
        
        
        
        
        
      
      
        
          Future policy benefits and claims
        
        
          $
        
        
          34,252.3
        
        
        
        
        
        
          $
        
        
          35,441.5
        
        
        
      
      
        
          Short-term debt
        
        
        
        
          336.6
        
        
        
        
        
        
        
        
          309.3
        
        
        
      
      
        
          Long-term debt
        
        
        
        
          1,720.3
        
        
        
        
        
        
        
        
          1,565.1
        
        
        
      
      
        
          Other liabilities
        
        
        
        
          3,657.6
        
        
        
        
        
        
        
        
          3,711.6
        
        
        
      
      
        
          Separate account liabilities
        
        
           
        
        
          57,908.5
        
        
           
        
        
           
        
        
           
        
        
          72,855.0
        
        
           
        
      
      
        
          Total liabilities
        
        
           
        
        
          97,875.3
        
        
           
        
        
           
        
        
           
        
        
          113,882.5
        
        
           
        
      
      
        
        
        
        
        
        
        
           
        
      
      
        
          Shareholders’ equity:
        
        
        
        
        
        
        
      
      
        
          Class A common stock
        
        
        
        
          0.7
        
        
        
        
        
        
        
        
          0.7
        
        
        
      
      
        
          Class B common stock
        
        
        
        
          1.0
        
        
        
        
        
        
        
        
          1.0
        
        
        
      
      
        
          Additional paid-in capital
        
        
        
        
          1,801.6
        
        
        
        
        
        
        
        
          1,782.4
        
        
        
      
      
        
          Retained earnings
        
        
        
        
          4,516.5
        
        
        
        
        
        
        
        
          4,853.0
        
        
        
      
      
        
          Accumulated other comprehensive loss
        
        
        
        
          (844.4
        
        
          )
        
        
        
        
        
        
          (81.5
        
        
          )
        
      
      
        
          Treasury stock
        
        
        
        
          (1,262.5
        
        
          )
        
        
        
        
        
        
          (1,229.6
        
        
          )
        
      
      
        
          Other, net
        
        
           
        
        
          (1.3
        
        
          )
        
        
           
        
        
           
        
        
          (1.4
        
        
          )
        
      
      
        
          Total shareholders’ equity
        
        
           
        
        
          4,211.6
        
        
           
        
        
           
        
        
           
        
        
          5,324.6
        
        
           
        
      
      
        
          Total liabilities and shareholders’ equity
        
        
          $
        
        
          102,086.9
        
        
           
        
        
           
        
        
          $
        
        
          119,207.1
        
        
           
        
      
    
    
      Non-GAAP Measures Used in this Earnings Announcement by Nationwide 
      Financial
    
    
      Nationwide Financial Services, Inc. (NFS) prepares its consolidated 
      financial statements in accordance with accounting principles generally 
      accepted in the United States of America (GAAP). In addition to using 
      the GAAP consolidated financial statements, NFS analyzes operating 
      performance using certain non-GAAP financial measures. The following 
      non-GAAP financial measures appear in the accompanying earnings 
      announcement.
    
    
      Net operating revenues are calculated by adjusting total revenues 
      to include only net realized investment gains and losses that are 
      related to operating items (periodic net amounts paid or received on 
      interest rate swaps that do not qualify for hedge accounting treatment, 
      trading portfolio realized gains and losses, trading portfolio valuation 
      changes, and net realized gains and losses related to securitizations), 
      net of interest credited to policyholder accounts.
    
    
      Operating realized investment gains and losses include net 
      realized investment gains and losses that are related to operating items 
      (periodic net amounts paid or received on interest rate swaps that do 
      not qualify for hedge accounting treatment, trading portfolio realized 
      gains and losses, trading portfolio valuation changes, and net realized 
      gains and losses related to securitizations).
    
    
      Net operating (loss) earnings are calculated by adjusting net 
      (loss) income to exclude the following (all net of taxes): non-operating 
      net realized investment gains and losses; discontinued operations; and 
      the cumulative effect of adoption of accounting principles.
    
    
      Net operating (loss) earnings per common diluted share is 
      calculated by dividing net operating (loss) earnings by the number of 
      weighted average common diluted shares outstanding for the period 
      indicated.
    
    
      Net operating return on average equity excluding AOCI is 
      calculated by annualizing net operating (loss) earnings and dividing by 
      average shareholders’ equity excluding 
      accumulated other comprehensive income (AOCI).
    
    
      Book value per basic share excluding AOCI is calculated by 
      dividing total shareholders’ equity less AOCI 
      by the number of common shares outstanding as of the date indicated.
    
    
      Sales refers to a production volume metric that Nationwide 
      Financial regularly monitors and reports. Sales or similar measures are 
      commonly used in the insurance industry as a measure of the volume of 
      new and renewal business generated in a period.
    
    
      Sales are not derived from any specific GAAP income statement accounts 
      or line items and should not be viewed as a substitute for any financial 
      measure determined in accordance with GAAP, including sales as it 
      relates to non-insurance companies. Additionally, Nationwide Financial’s 
      definition of sales may differ from that used by other companies. As 
      used in the insurance industry, sales, or similarly titled measures, 
      generate customer funds managed and administered, which ultimately drive 
      revenues.
    
    
      As calculated and analyzed by management, statutory premiums and 
      deposits on individual and group annuities and life insurance products 
      calculated in accordance with accounting practices prescribed or 
      permitted by regulatory authorities and deposits on administration-only 
      group retirement plans and the advisory services program are adjusted as 
      described below to arrive at sales.
    
    
      Life insurance premiums determined on a GAAP basis are significantly 
      different than statutory premiums and deposits. Life insurance premiums 
      determined on a GAAP basis are recognized as revenue when due, as 
      calculated on an accrual basis in proportion to the service provided and 
      performance rendered under the contract. In addition, many life 
      insurance and annuity products involve an initial deposit or a series of 
      deposits from customers. These deposits are accounted for as such on a 
      GAAP basis and therefore are not reflected in the GAAP income statement. 
      On a statutory basis, life insurance premiums collected (cash basis) and 
      deposits received (cash basis) are aggregated and reported as statutory 
      premiums and annuity consideration revenues.
    
    
      Sales, as reported by Nationwide Financial, are stated net of internal 
      replacements, which management believes provides a more meaningful 
      disclosure of production in a given period. In addition, Nationwide 
      Financial’s definition of sales excludes 
      funding agreements issued under its medium term note program; asset 
      transfers associated with large case bank-owned life insurance and large 
      case retirement plan acquisitions; and deposits into Nationwide employee 
      and agent benefit plans. Although these products contribute to asset and 
      earnings growth, their production flows potentially can mask trends in 
      the underlying business and thus do not provide meaningful comparisons 
      and analyses.
    
    
      Management believes that the presentation of sales as measured for 
      management purposes enhances the understanding of the Company’s 
      business and helps depict longer-term trends that may not be apparent in 
      the results of operations due to differences between the timing of sales 
      and revenue recognition.
    
    
      Use of Non-GAAP Measures in Practice
    
    
      Operating revenues, operating realized investment gains and losses, net 
      operating (loss) earnings, net operating (loss) earnings per common 
      diluted share, operating return on average equity, excluding AOCI, book 
      value per common share excluding AOCI, sales or similar measures are 
      commonly used in the insurance industry as measures of ongoing earnings 
      performance.
    
    
      Excluded Items and Cautionary Information
    
    
      The excluded items are important in understanding NFS’ 
      overall results of operations, and NFS’ 
      definition of these non-GAAP financial measures may differ from those 
      used by other companies. None of these non-GAAP financial measures 
      should be viewed as substitutes for any GAAP financial measures.
    
    
      Specifically, operating revenues, operating realized investment gains 
      and losses, pre-tax operating (loss) earnings, net operating (loss) 
      earnings, net operating (loss) earnings per common diluted share, 
      operating return on average equity, excluding AOCI, book value per 
      common share excluding AOCI and sales should not be viewed as 
      substitutes for total revenues, net realized investment gains and 
      losses, (loss) income from continuing operations before federal income 
      tax (benefit) expense, net (loss) income, (loss) earnings per common 
      diluted share, return on average equity, book value per common share, 
      and revenues, respectively, determined in accordance with GAAP. 
      Nationwide Financial believes that the presentation of these non-GAAP 
      financial measures as they are measured for management purposes enhances 
      the understanding of Nationwide Financial’s 
      results of operations by highlighting the results from continuing 
      operations, on a pre- and post-tax basis as applicable, and the 
      underlying profitability drivers of Nationwide Financial’s 
      business.
    
    
      Nationwide Financial excludes operating items (periodic net amounts paid 
      or received on interest rate swaps that do not qualify for hedge 
      accounting treatment, trading portfolio realized gains and losses, 
      trading portfolio valuation changes, and net realized gains and losses 
      related to securitizations) from net realized investment gains and 
      losses, net of taxes, in the calculation of these non-GAAP financial 
      measures because such items are often the result of a series of 
      independent event-driven activities, the timing of which may or may not 
      be at Nationwide Financial’s discretion. 
      Excluding the fluctuating effects of these transactions helps to depict 
      trends in the underlying profitability of Nationwide Financial’s 
      business without consideration of these items. Nationwide Financial also 
      excludes discontinued operations and the cumulative effect of adoption 
      of accounting principles, both net of taxes, from net operating (loss) 
      earnings, as such adjustments do not reflect the continuing operations 
      of Nationwide Financial’s business.
    
    
      
        
          Exhibit 3 to Third Quarter 2008 Results Announcement
        
      
      
        
        
        
        
        
           
        
        
        
      
      
        
          
            Reconciliation of Non-GAAP Financial Measures to GAAP Financial 
            Measures
          
        
      
      
        
          
            The following tables reconcile non-GAAP financial measures used in 
            the accompanying Nationwide Financial earnings announcement to the 
            most comparable GAAP financial measures for each of the periods 
            indicated. Page ten of the earnings announcement includes a 
            reconciliation of net operating earnings to net income, including 
            per diluted share information. This table has not been repeated in 
            this exhibit. Also, a reconciliation of the forward-looking 
            non-GAAP financial measure net operating earnings per diluted 
            share to net income per diluted share has not been provided 
            because Nationwide Financial does not regularly forecast 
            non-operating net realized investment gains and losses1. 
            Non-operating net realized investment gains and losses represented 
            ($0.87) per weighted average diluted share in 2007 and ranged from 
            $0.14 to ($0.87) per weighted average diluted share over the past 
            five full years. The results of past accounting periods, including 
            quarterly and annual results, are not necessarily indicative of 
            the results to be expected for any future accounting period.
          
        
      
      
        
        
        
        
        
           
        
        
        
        
        
        
        
        
        
        
           
        
        
        
        
        
      
      
        
          
            Net operating revenues to 
            revenues2
          
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
        
        
          Three months ended September 30,
        
        
        
        
          Nine months ended September 30,
        
      
      
        
          (in millions)
        
        
          2008
        
        
           
        
        
           
        
        
          2007
        
        
           
        
        
          2008
        
        
           
        
        
           
        
        
          2007
        
      
      
        
          Net operating revenues
        
        
          $
        
        
          717.7
        
        
        
        
        
        
        
        
          $
        
        
          815.5
        
        
        
        
        
        
          $
        
        
          2,320.0
        
        
        
        
        
        
        
        
          $
        
        
          2,482.5
        
        
        
      
      
        
          Non-operating net realized investment losses1
        
        
        
        
          (533.9
        
        
          )
        
        
        
        
        
        
        
        
          (17.0
        
        
          )
        
        
        
        
        
        
          (745.8
        
        
          )
        
        
        
        
        
        
        
        
          (34.7
        
        
          )
        
      
      
        
          Interest credited to policyholder accounts
        
        
           
        
        
          300.8
        
        
           
        
        
           
        
        
           
        
        
           
        
        
          333.3
        
        
           
        
        
           
        
        
           
        
        
          907.2
        
        
           
        
        
           
        
        
           
        
        
           
        
        
          1,012.4
        
        
           
        
      
      
        
          Revenues
        
        
          $
        
        
          484.6
        
        
           
        
        
           
        
        
           
        
        
          $
        
        
          1,131.8
        
        
           
        
        
           
        
        
          $
        
        
          2,481.4
        
        
           
        
        
           
        
        
           
        
        
          $
        
        
          3,460.2
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            Operating net realized 
            investment (losses) gains to net realized investment losses
          
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
        
        
          Three months ended September 30,
        
        
        
        
          Nine months ended September 30,
        
      
      
        
          (in millions)
        
        
          2008
        
        
           
        
        
           
        
        
          2007
        
        
           
        
        
          2008
        
        
           
        
        
           
        
        
          2007
        
      
      
        
          Operating net realized investment (losses) gains
        
        
          $
        
        
          (21.2
        
        
          )
        
        
        
        
        
        
          $
        
        
          (3.4
        
        
          )
        
        
        
        
          $
        
        
          (42.1
        
        
          )
        
        
        
        
        
        
          $
        
        
          0.3
        
        
        
      
      
        
          Non-operating net realized investment losses1
        
        
           
        
        
          (533.9
        
        
          )
        
        
           
        
        
           
        
        
           
        
        
          (17.0
        
        
          )
        
        
           
        
        
           
        
        
          (745.8
        
        
          )
        
        
           
        
        
           
        
        
           
        
        
          (34.7
        
        
          )
        
      
      
        
          Net realized investment losses
        
        
          $
        
        
          (555.1
        
        
          )
        
        
           
        
        
           
        
        
          $
        
        
          (20.4
        
        
          )
        
        
           
        
        
          $
        
        
          (787.9
        
        
          )
        
        
           
        
        
           
        
        
          $
        
        
          (34.4
        
        
          )
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            Pre-tax operating (loss) 
            earnings to (loss) income from continuing operations before 
            federal income tax (benefit) expense2
          
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
        
        
          Three months ended September 30,
        
        
        
        
          Nine months ended September 30,
        
      
      
        
          (in millions)
        
        
          2008
        
        
           
        
        
           
        
        
          2007
        
        
           
        
        
          2008
        
        
           
        
        
           
        
        
          2007
        
      
      
        
          Pre-tax operating (loss) earnings
        
        
          $
        
        
          (43.6
        
        
          )
        
        
        
        
        
        
          $
        
        
          203.7
        
        
        
        
        
        
          $
        
        
          310.4
        
        
        
        
        
        
        
        
          $
        
        
          711.1
        
        
        
      
      
        
          
            Non-operating net realized investment losses1 
            including related adjustments to amortization
          
        
        
           
        
        
          (485.3
        
        
          )
        
        
           
        
        
           
        
        
           
        
        
          (12.8
        
        
          )
        
        
           
        
        
           
        
        
          (684.0
        
        
          )
        
        
           
        
        
           
        
        
           
        
        
          (25.5
        
        
          )
        
      
      
        
          (Loss) income from continuing operations before federal income tax 
          (benefit) expense
        
        
          $
        
        
          (528.9
        
        
          )
        
        
           
        
        
           
        
        
          $
        
        
          190.9
        
        
           
        
        
           
        
        
          $
        
        
          (373.6
        
        
          )
        
        
           
        
        
           
        
        
          $
        
        
          685.6
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            Net operating (loss) earnings to 
            net (loss) income and net operating (loss) return on average 
            equity to (loss) return on average equity 2
          
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
        
        
          Three months ended September 30,
        
      
      
        
        
        
          2008
        
        
        
        
          2007
        
      
      
        
        
        
        
        
        
        
          Ratio (annualized)
        
        
        
        
        
        
        
        
          Ratio (annualized)
        
      
      
        
          (in millions)
        
        
          Amount
        
        
           
        
        
          Ex AOCI
        
        
          w/AOCI
        
        
           
        
        
          Amount
        
        
           
        
        
          Ex AOCI
        
        
          w/AOCI
        
      
      
        
          Net operating (loss) earnings
        
        
          $
        
        
          (21.8
        
        
          )
        
        
        
        
          (1.7
        
        
          %)
        
        
        
        
          (1.9
        
        
          %)
        
        
        
        
          $
        
        
          154.6
        
        
        
        
        
        
          11.3
        
        
          %
        
        
        
        
          11.4
        
        
          %
        
      
      
        
          
            Non-operating net realized investment losses1 
            including related adjustments to amortization, net of taxes
          
        
        
        
        
          (315.4
        
        
          )
        
        
        
        
          (24.0
        
        
          %)
        
        
        
        
          (27.7
        
        
          %)
        
        
        
        
        
        
          (8.4
        
        
          )
        
        
        
        
          (0.6
        
        
          %)
        
        
        
        
          (0.6
        
        
          %)
        
      
      
        
          Discontinued operations, net of taxes
        
        
           
        
        
          (9.2
        
        
          )
        
        
           
        
        
          (0.7
        
        
          %)
        
        
           
        
        
          (0.8
        
        
          %)
        
        
           
        
        
           
        
        
          0.8
        
        
           
        
        
           
        
        
          0.1
        
        
          %
        
        
           
        
        
          0.1
        
        
          %
        
      
      
        
          Net (loss) income
        
        
          $
        
        
          (346.4
        
        
          )
        
        
           
        
        
          (26.4
        
        
          %)
        
        
           
        
        
          (30.4
        
        
          %)
        
        
           
        
        
          $
        
        
          147.0
        
        
           
        
        
           
        
        
          10.8
        
        
          %
        
        
           
        
        
          10.9
        
        
          %
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Average equity, excluding AOCI
        
        
          $
        
        
          5,246.9
        
        
        
        
        
        
        
        
        
        
        
        
          $
        
        
          5,461.9
        
        
        
        
        
        
        
        
        
      
      
        
          Average AOCI
        
        
           
        
        
          (684.8
        
        
          )
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
          (65.1
        
        
          )
        
        
           
        
        
           
        
        
           
        
      
      
        
          Average equity
        
        
          $
        
        
          4,562.1
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
          $
        
        
          5,396.8
        
        
           
        
        
           
        
        
           
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
          Nine months ended September 30,
        
      
      
        
        
        
          2008
        
        
        
        
          2007
        
      
      
        
        
        
        
        
        
        
          Ratio (annualized)
        
        
        
        
        
        
        
        
          Ratio (annualized)
        
      
      
        
          (in millions)
        
        
          Amount
        
        
           
        
        
          Ex AOCI
        
        
          w/AOCI
        
        
           
        
        
          Amount
        
        
           
        
        
          Ex AOCI
        
        
          w/AOCI
        
      
      
        
          Net operating earnings
        
        
          $
        
        
          237.3
        
        
        
        
        
        
          5.9
        
        
          %
        
        
        
        
          6.5
        
        
          %
        
        
        
        
          $
        
        
          530.8
        
        
        
        
        
        
          12.7
        
        
          %
        
        
        
        
          12.7
        
        
          %
        
      
      
        
          
            Non-operating net realized investment losses1 
            including related adjustments to amortization, net of taxes
          
        
        
        
        
          (444.8
        
        
          )
        
        
        
        
          (11.1
        
        
          %)
        
        
        
        
          (12.2
        
        
          %)
        
        
        
        
        
        
          (16.6
        
        
          )
        
        
        
        
          (0.4
        
        
          %)
        
        
        
        
          (0.4
        
        
          %)
        
      
      
        
          Discontinued operations, net of taxes
        
        
        
        
          (9.0
        
        
          )
        
        
        
        
          (0.2
        
        
          %)
        
        
        
        
          (0.2
        
        
          %)
        
        
        
        
        
        
          44.4
        
        
        
        
        
        
          1.1
        
        
          %
        
        
        
        
          1.1
        
        
          %
        
      
      
        
          Cumulative effect of adoption of accounting principle, net of taxes
        
        
           
        
        
          -
        
        
           
        
        
           
        
        
          -
        
        
           
        
        
           
        
        
          -
        
        
           
        
        
           
        
        
           
        
        
          (6.0
        
        
          )
        
        
           
        
        
          (0.1
        
        
          %)
        
        
           
        
        
          (0.1
        
        
          %)
        
      
      
        
          Net (loss) income
        
        
          $
        
        
          (216.5
        
        
          )
        
        
           
        
        
          (5.4
        
        
          %)
        
        
           
        
        
          (5.9
        
        
          %)
        
        
           
        
        
          $
        
        
          552.6
        
        
           
        
        
           
        
        
          13.3
        
        
          %
        
        
           
        
        
          13.3
        
        
          %
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Average equity, excluding AOCI
        
        
          $
        
        
          5,320.6
        
        
        
        
        
        
        
        
        
        
        
        
          $
        
        
          5,559.7
        
        
        
        
        
        
        
        
        
      
      
        
          Average AOCI
        
        
           
        
        
          (457.4
        
        
          )
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
          (3.7
        
        
          )
        
        
           
        
        
           
        
        
           
        
      
      
        
          Average equity
        
        
          $
        
        
          4,863.2
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
          $
        
        
          5,556.0
        
        
           
        
        
           
        
        
           
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            Book value per common basic 
            share excluding AOCI to book value per common basic share
          
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          (in millions, except per share data)
        
        
          As of September 30, 2008
        
        
        
        
          As of December 31, 2007
        
      
      
        
          Amount
        
        
           
        
        
           
        
        
          Per share
        
        
           
        
        
          Amount
        
        
           
        
        
           
        
        
          Per share
        
      
      
        
          Total equity, excluding AOCI
        
        
          $
        
        
          5,056.0
        
        
        
        
        
        
        
        
          $
        
        
          36.64
        
        
        
        
        
        
          $
        
        
          5,406.1
        
        
        
        
        
        
        
        
          $
        
        
          39.03
        
        
        
      
      
        
          AOCI
        
        
           
        
        
          (844.4
        
        
          )
        
        
           
        
        
           
        
        
           
        
        
          (6.12
        
        
          )
        
        
           
        
        
           
        
        
          (81.5
        
        
          )
        
        
           
        
        
           
        
        
           
        
        
          (0.59
        
        
          )
        
      
      
        
          Total equity
        
        
          $
        
        
          4,211.6
        
        
           
        
        
           
        
        
           
        
        
          $
        
        
          30.52
        
        
           
        
        
           
        
        
          $
        
        
          5,324.6
        
        
           
        
        
           
        
        
           
        
        
          $
        
        
          38.44
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Common basic shares outstanding
        
        
           
        
        
          138.0
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
           
        
        
          138.5
        
        
           
        
        
           
        
        
           
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            1 Excluding operating items (periodic net 
            amounts paid or received on interest rate swaps that do not 
            qualify for hedge accounting treatment, trading portfolio realized 
            gains and losses, trading portfolio valuation changes, and net 
            realized gains and losses)
          
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          
            2 The results of operations of TBG 
            Financial and The 401(k) Company are reflected as discontinued.